Bombardier Inc (TSE:BBD.B): Cash Is King

If you are currently a shareholder in Bombardier Inc (TSX:BBD.B), or considering investing in the stock, you need to examine how the business generates cash, and how it is reinvested. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I will take you through Bombardier’s cash flow health and the risk-return concept based on the stock’s cash flow yield, using the most recent financial data. This will help you think about the company from a cash perspective, which is a crucial factor to investing. Check out our latest analysis for Bombardier

What is Bombardier's cash yield?

Free cash flow (FCF) is the amount of cash Bombardier has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations. I will be analysing Bombardier’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.

The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.

Does Bombardier have a favourable cash flow trend?

Bombardier’s FCF may be negative today, but is operating cash flows expected to improve in the future? Let’s examine the cash flow trend the company is anticipated to produce over time. In the next few years, a doubling in growth of operating cash flows is extremely uplifting, especially if capital expenditure grows at a lower rate. Below is a table of Bombardier’s operating cash flow in the past year, as well as the anticipated level going forward.

	Current	+1 year	+2 year	+3 year
Operating Cash Flow (OCF)	CA$531M	CA$1016M	CA$1203M	CA$1477M
OCF Growth Year-On-Year		91.32%	18.41%	22.79%
OCF Growth From Current Year			126.53%	178.17%

Next Steps:

Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I suggest you continue to research Bombardier to get a better picture of the company by looking at:

• 1. Valuation: What is BBD.B worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BBD.B is currently mispriced by the market.
• 2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Bombardier’s board and the CEO’s back ground.
• 3. Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.