Surging corporate profit is creating a good problem for companies and their investors: A growing pile of cash.
Nine companies in the , including home security firm ADT, biotech Gilead Sciences and financial software company Intuit, saw their cash piles grow by 10% in the first calendar quarter while generating astounding free cash flow margins, according to a USA TODAY analysis of data from S&P Capital IQ.
These aren't the same companies with the biggest piles of cash, necessarily. Cash piles at Apple are already well-known. These are companies that have businesses that make them conductive to generating free cash at a rapid clip.
Only companies generating $25 in cash from operations, even after paying costs to maintain and upgrade equipment, from every $100 in revenue the past twelve months were included. This step weeds out companies that saw big increases in cash simply by borrowing or selling units alone, and limits the list to companies that are practically minting cash.
Watching these big-time corporate cash machines is critical for investors looking to find firms that could be candidates for boosting their dividend or upping stock buyback programs. Four of the nine companies currently don't pay a dividend. Investors are increasingly looking to dividends as important parts of a predictable income stream.
The free-cash-flow machine with the biggest increase in its cash balance is ADT. The home security business' cash and short-term investments jumped 315% in the first calendar quarter vs. the fourth calendar quarter of 2013. A big part of that increase is due to the company issuing $500 million in new debt. Even so, ADT generated $25 in free cash flow for every $100 in revenue over the past twelve months, a level possible by stable cash payments made by customers and relatively low costs.
Another big cash generator was Intuit, which saw its balance of cash and short-term investments nearly double in the first calendar quarter. Strong 14% revenue growth at Intuit's consumer unit, which sells tax preparation software, was a big driver of the company's cash generation success.
The companies with the largest increases in cash balances in the first-calendar quarter (versus the fourth quarter of 2013) and free cash flow as a percentage of revenue of 25% or more include:
Quarterly ups and downs in cash balances can be somewhat misleading due to borrowing or divestitures or large cash investments. So, investors might be curious which companies generate the most free cash flow relative to revenue, period.
Looking at the companies that generated the highest free cash flow to revenue over the past 12 months reveals a slightly different ordering: Both of the big credit card processors, Visa and MasterCard, for instance, are massive generators of cash relative to their revenue. Some of these companies, though, posted declines in cash during the quarters anyway due to corporate cash requirements.
The top ten generators of free-cash flow to revenue over the past twelve months include: