Reid D. Notes, 07 May 2014
In this note, we analyze the company’s fiscal Q2 cash flows, we estimate the magnitude of CGI’s customer backlog cancellations during the quarter, and we discuss Serge Godin’s ownership stake in CGI. Can a company juice short-term cash flows by managing accounts receivable
A company’s level of working capital is a key driver of free cash flow. A company that increases its level of working capital produces less free cash flow, all else equal. In the long run, working capital levels are driven by a company’s growth and its negotiating leverage with customers and suppliers.
But in the short term, management teams have tactics at their disposal to reduce working capital and temporarily increase a company’s cash flows. Importantly, managing working capital to juice near-term cash flow can involve tradeoffs that lead to reduced cash flow, profits, or growth in the future.
