New Study in CFO Magazine Casts Doubt on U.S. Corporate Profits; Comparison of Cash Flow vs. Earnings Shows a Troubling Gap

BOSTON--(BUSINESS WIRE)--Dec. 2, 2003--CFO magazine reports that the recent upturn in U.S. corporate profits is not as significant as many press reports suggest it is. A new study, by the Financial Analysis Lab at the Georgia Institute of Technology's DuPree College of Management, finds a troubling gap between cash flow from operations and operating income last year for the 87 nonfinancial members of the S&P 100. The study finds that the difference between operating cash flow and income last year for the median company in the group was almost 12% greater than average for the three years that ended in 2002.

Such a wide gap reflects a heavy dependence on improvements in working capital and other boosts to cash flow that aren't sustainable, simply because such gains aren't generated by the growth of a company's underlying business operations. "At least some of the recent improvement in cash flow is not earnings produced," says Charles Mulford, an accounting professor who oversees the Georgia Tech Lab. "That kind of growth is not sustainable."

“That kind of growth is not sustainable.”

Who Has The Biggest and Smallest Gaps?

Biggest: (1) Sears (2) Pharmacia (3) Bristol-Myers Squibb (4) H.J. Heinz (5) Amgen (6) Hewlett-Packard (7) Microsoft (8) Allegheny Technologies (9) Lucent Technologies (10) AOL Time Warner

Smallest: (1) Oracle (2) Entergy (3) General Electric (4) Home Depot (5) Nextel (6) Gillette (7) Norfolk Southern (8) Burlington Northern Santa Fe (9) Anheuser-Busch (10) Minnesota Mining and Mfg.

For a look at the complete story, Mind the Gap, visit www.cfo.com.

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