The power of free cash flows: Fatigued Cash Machines & Strugglers

In the first part of this series, we saw how businesses can be classified on the basis of the strength of free cash generation and earnings growth. We also saw the most rewarding types of companies in the second part. Let's now study the least rewarding types of companies based on this criterion. Fatigued Cash Machines: Weak earnings growth despite consistently positive free cash flows Although these companies are profitable in their core business (many of them will have high ROCEs as well), they cannot find enough avenues for capital redeployment to grow their businesses. Their free cash flows are strong and positive due to low rates of capital redeployment. Some of these companies might have once belonged to the category of Relentless Cash Machines but subsequently faced saturation in their core businesses. It is worth noting that as a Relentless Cash Machine transitions into a Fatigued Cash Machine, its free cash flows might continue to grow at a healthy pa

This article was originally published on September 30, 2021.