U.S. Steel Corporation’s 2Q15 cash flow
In the previous part of this series, we learned that U.S. Steel Corporation (X) has managed to reduce its cash conversion cycle. Now, we’ll look at U.S. Steel’s cash flow in 2Q15.
At any enterprise, cash flow comes from operating, investing, or financing. Raising cash through the issue of debt comes under financing activities. On the other hand, cash flow from the disposal or purchase of fixed assets falls under investing activities.
Operating cash flow
Operating cash flow is generated by a company’s core operations. In the last two quarters, U.S. Steel has reined in its working capital and posted a positive operating cash flow despite also posting a loss. You can see the trend in U.S. Steel’s operating cash flow in the previous chart.
Earnings are the key driver of operating cash flow
From an investor’s perspective, it’s important to know that there’s a limit beyond which a company can’t cut its working capital. Over the long term, earnings are the key driver of a company’s operating cash flow.
U.S. Steel’s positive operating cash flow in 2Q15 might not be sustained in the coming quarters unless the company posts an operating profit. We’ll look at U.S. Steel’s guidance for 2015 profitability in the next part of our series.