Cash Flow Analysis: Johnson Controls International Plc (JCI)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
JOHNSON CONTROLS INTERNATIONAL PLC Ireland/
NYSE
Industrials – Engineering & Construction – Engineering & Construction USD33.45
@ 02 Jul 2018
COMPANY PROFILE Johnson Controls International PLC manufacturers, installs, and services HVAC systems, building management systems and controls, and industrial refrigeration systems. The firm along with Tyco International offers fire and security products and services.

Johnson Controls is a multi-industrial company that operates two distinct businesses. The building technologies and solutions segment manufactures, installs, and services HVAC systems, building management systems and controls, industrial refrigeration systems, and fire and security solutions. The power solutions segment manufactures vehicle batteries that are sold to automakers and aftermarket retailers.

Stock Code JCI
Cash Flow Analysis Below
Cash is the lifeline of a business. The company needs cash, not profits to pay salaries, suppliers etc. Profits may not translate to cash if a company is not efficient in managing its Cash Conversion Cycle (more of that below). For example, when a company sells a product at a price higher than costs, it makes a profit. But until he collects payment from the customer, the profit does not translate into cash. Cash Flow Analysis is about analyzing whether a company is able to generate healthy cash flows, which are essential not only to grow the business but also to remain in business.
The chart belows looks at whether the company’s cash has increased or decreased through the years (the blue line indicates the change in cash). The colored boxes show what had caused the cash to increase or decrease. If the boxes are above/below the zero line, it had caused an increase/decrease in cash during that year. In a healthy situation, the company should be generating Cash from Operations (i.e. from its core business). If a company generates Cash from Financing, it means it is borrowing more, which may cause its financial condition to deteriorate. If it generates Cash from Investing, it means it is either issuing more shares, which may lead to earnings dilution or selling businesses/assets, which may lead to lower future earnings.

Johnson Controls Cash Flow Analysis

In the last 5 years, the company’s cash increased cash by USD234,000. Cash from Operations increased cash by USD8,588,000, Cash from Investing Activities decreased cash by USD4,727,000 while Cash from Financing Activities decreased cash by USD3,663,000. The most important contributor to cash is Cash from Operations, which is a heathy sign.

Johnson Controls Cash from Operations

In a healthy situation, a company should get most of its Cash from Operations by increasing its Funds from Operations (i.e. Net Income plus Non-cash expenses). When a business grows, part of the profits may be tied up in working capital (as receivables and inventory increases) but this should not consume up the majority of the Cash from Operations.
In the last 5 years, the company’s Cash from Operations increased cash by USD8,588,000. The biggest item affecting Cash from Operations is Funds from Operations (i.e. Net Income plus Non-cash expenses), which increased cash by USD10,394,000. This is a healthy sign. This is followed by Cash Flow from Other Operating Activities, which increased cash by USD8,042,000.

Johnson Controls Cash from Financing Activities

A growing company may continuously need to raise funds via issuance of stock and debt. However, if this is done excessive, it will lead to an unhealthy situation. Too much new issue of stocks will dilute Earnings per Share and too much debt will cause the company’s financial condition to weaken. Payment of Dividends or share buybacks are good if the company is profitable and generating healthy Cash from Operations. However, a company should not be issuing new debt in order to do these.
In the last 5 years, the company’s Cash from Financing Activities decreased cash by USD3,663,000. The biggest item affecting Cash from Financing Activities is Net Issuance/(Repurchase) of Stock, which decreased cash by USD4,113,000. This means that the company bought back its shares. This is followed by Payment of Dividends, which decreased cash by USD3,355,000.
The company financed its dividend payments and/or share buybacks partially with increased borrowings.

Johnson Controls Cash from Investing Activities

Cash Flow from Investing Activities refers to whether the company is spending money to purchase assets or businesses or raising cash by selling assets or businesses. This analysis goes hand-in-hand with the analysis of Free Cash Flows above. We want to ensure that a company is generating enough cash flow from its businesses even after making the necessary investments. Unless investment is a core component of a company’s business, it should not be spending a large amount of cash to make investments.
In the last 5 years, the company’s Cash from Investing Activities decreased cash by USD4,727,000. The biggest item affecting this is (Purchase)/Sale Of Property, Plant, Equipment, which decreased cash by USD1,261,000. This is followed by (Purchase)/Sale Of Business, which increased cash by USD638,000. 0.0% of total cash used on investing activities is accounted for by net purchase of investments.

 

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