Cash, debt, and cash flows

Earlier in this series, we discussed growth in Oracle’s (ORCL) operating segments and their consequent impact on margins. Let’s look into Oracle’s cash, debt, and cash flows.

In fiscal 2017, Oracle’s cash reserves stood at ~$66.1 billion, and the company had ~$58.0 billion in debt. In fiscal 2016, it had only $44 billion in debt. In fiscal 4Q17, Oracle generated ~$14.2 billion and $12.1 billion in OCF (operating cash flow) and FCF (free cash flow), respectively.
A Look at Oracle’s Cash, Debt, and Cash Flows in Fiscal 2017

Oracle’s cash flow and dividends

Oracle’s FCF as a percentage of net income (or NI), from the last three years, has ranged from 123% to 143%. As a percentage of NI for the TTM (trailing 12 months), its FCF at the end of May 2017 was 137%. The FCF-to-NI ratio is significant because it indicates the earnings quality of companies. Ratios above 1 indicate higher earnings quality because free cash flows constitute a majority of net income. Usually, when both FCF and NI are in sync, it indicates sound earnings quality.

Although rising debt remains a concern, Oracle has managed to steadily increase its cash and cash flows. As a result, the company should be able to increase its shareholder returns going forward.

In the last 12 months, Oracle returned $6.1 billion, with $3.5 billion through share repurchases and $2.6 billion in dividend cash to its shareholders. The dividend will be payable on August 2, 2017, to shareholders of record on July 19, 2017.

Despite minimal revenue growth, Oracle doesn’t hold back much when it comes to dividends, as its investors and shareholders consider dividends as steady income—especially in the current scenario of increasing uncertainty and volatility. IBM (IBM) follows the same policy.

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