Analyzing VMware’s Cash and Cash Flow in Fiscal 2Q18
VMware’s cash, debt, and cash flow positions
In this article, we’ll look at VMware’s (VMW) cash, debt, and cash flows in its most recent quarter. In fiscal 2Q18, VMware’s cash, cash equivalents, and short-term investments totaled $8.9 billion. It generated OCF (operating cash flow) and FCF (free cash flow) of $620 million and $563 million, respectively.
VMW had $1.5 billion of total debt on its books in fiscal 2Q18, which is composed completely of notes payable to EMC. VMware’s board of directors approved $1.0 billion in stock repurchases. $900.0 million is still left of VMware’s $1.2 billion stock repurchase program for fiscal 2018.
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Rising free cash flow increases the possibility of stock price appreciation
VMware’s free cash flow metrics give us an idea of the cash that remains after capital expenditures. This cash is most likely to reach the company’s shareholders, making it of particular importance to shareholders and investors.
VMware’s strategic shift toward the rapidly growing cloud space, coupled with its management’s focus on costs, has led to an expansion in its overall net margin. Within the technology space, the cloud space garners high margins. Higher gross margins translate to higher cash flows.
Companies making a transition toward the cloud generally have much higher capital expenditure (or capex) requirements than software businesses. This explains the billion-dollar investments of Amazon (AMZN), Microsoft (MSFT), Google (GOOG), and Oracle (ORCL) in capex.