Cash Flow: What’s Remains After Growth

Profit Is Not the Same as Cash Flow

There can be signi­fi­cant diffe­rences between profit and cash inflow. Revenue is sometimes recognized before payment is received, and inven­tory must be pre-financed. Stock-based compen­sa­tion reduces profit without an immediate outflow of cash.

Free cash flow—operating cash flow minus capital expenditures—shows how much money is available for dividends, share buybacks, debt repayment, or acqui­si­tions. However, even this metric is not an unadul­terated “fact”: payment schedules, supplier finan­cing, and changes in working capital can tempo­r­a­rily affect it. That is why we examine its trend over a longer period of time.

When Negative Cash Flow Becomes a Warning Sign

Negative free cash flow isn’t neces­s­a­rily a bad thing. When a company invests in new capacity, it spends money today to generate higher earnings in the future. The key factor is whether the expected return is reasonable and whether the company can finan­ci­ally bridge the gap until the invest­ment pays off.

A recent example outside our portfolio is Oracle. The company illustrates why we are cautious in the face of sharply rising capital expen­dit­ures, negative free cash flow, and incre­a­sing debt. In fiscal year 2026, capital expen­dit­ures rose to appro­xi­m­ately USD 56 billion, while opera­ting cash flow totaled just under USD 32 billion. As a result, free cash flow was negative by appro­xi­m­ately USD 24 billion.

At the same time, Oracle paid out nearly $6 billion in dividends and largely suspended its share buybacks. The funding gap was closed, in part, by taking on new debt. In July, S&P lowered the credit rating to BBB‑, the lowest level within the invest­ment-grade range.

This is offset by an order backlog of USD 638 billion. Demand is evident, but the resul­ting cash flow is largely in the future. If projects are delayed or returns fall short of expec­ta­tions, high debt and long-term obliga­tions will persist. As long as it remains unclear how quickly the order backlog will trans­late into cash flow and to what extent debt will continue to rise, we are refrai­ning from investing.

What We Look For

During capital-inten­sive growth phases, we examine four key points: Is opera­ting cash flow growing in line with revenue? What return do the newly invested funds generate? Can invest­ments be financed with internal resources? And how resilient will the balance sheet remain if cash inflows are delayed?

There­fore, it is not only the invest­ments themselves that are decisive, but also their finan­cing and the quality of the finan­cial state­ments.

Share Buybacks: It’s All About the Number of Shares

Many compa­nies compen­sate employees in part with shares. This can dilute the stakes of existing share­hol­ders. Buybacks only create added value if they more than offset this dilution and the number of shares actually decreases.

At Apple, the diluted number of shares fell by about 2.6% in 2025. At Micro­soft, it remained largely stable despite high buybacks because a signi­fi­cant portion offset stock-based compen­sa­tion. At Amazon, it rose slightly. For share­hol­ders, what matters is not the media-friendly buyback amount, but whether their economic stake in the company is growing.

What this means for our portfo­lios

Our portfo­lios combine diffe­rent cash flow profiles. Compa­nies such as Nestlé and Roche have estab­lished business models and generally finance their dividends from ongoing cash inflows. In the case of Micro­soft, Amazon, and other benefi­ci­a­ries of AI expan­sion, we accept higher levels of invest­ment but conti­nuously monitor whether revenue, opera­ting cash flow, and return on capital are growing in tandem. In the case of Oracle, we do not currently see these criteria being suffi­ci­ently met and are there­fore not invested in the company.

Apple demon­strates how high free cash flow can benefit share­hol­ders through share buybacks. As equip­ment suppliers, ABB, Schneider Electric, and ASML are benefiting from the invest­ment boom without having to finance the data centers themselves. We assess banks and insurance compa­nies separa­tely: for these sectors, capital genera­tion, regula­tory capital ratios, and solvency are more meaningful indica­tors than tradi­tional free cash flow.

What matters to us is not whether free cash flow declines in a single year. We want to under­stand why it is decli­ning, what returns the invest­ments are expected to generate, and how much finan­cial flexi­bi­lity remains. After all, sustainable growth is ultim­ately reflected in the cash flow it generates for share­hol­ders.

Contact: Stefan Schütz, Head of Equity Research, s.​schuetz@​tareno.​ch

Publisher: Tareno AG, Garten­strasse 56, 4052 Basel, Tel. +41 61 282 28 00, info@​tareno.​ch, www.tareno.ch. We welcome feedback on our publi­ca­tion. The content herein is provided for infor­ma­tional purposes only. This publi­ca­tion does not contain legal or invest­ment advice or invest­ment recom­men­da­tions, nor does it consti­tute an offer or a solici­ta­tion to make an invest­ment. Images / Charts: The charts were prepared by Tareno AG using publicly available market data.