cash king margin
While poking around the internet researching the Foolish Flow Ratio, I came across another useful measure from The Motley Fool - the Cash King Margin. The Cash King Margin is basically a measure of net profitability. However, since it uses free cash flow* instead of earnings, which are bullshit, I find it a superior indicator of profitability, or lack therof.
To calculate the Cash King Margin, divide the free cash flow by sales. If the result is 10 percent or greater, excellent. If not, then the company is doing a shit job of getting cash from sales to the bottom line and not worth paying a premium for. In general, a higher Cash King Margin is more desirable. And now, the ever popular table:
| Company | Cash King Margin (%) | ||
|---|---|---|---|
| 2006 | 2005 | Average 2001-2005 | |
| BNSF | 7.30 | 6.61 | 7.33 |
| Canadian National | 21.41 | 21.06 | 14.04 |
| Canadian Pacific | 5.61 | 3.79 | 1.41 |
| CSX | 4.38 | (0.30) | 0.78 |
| Norfolk Southern | 10.93 | 12.67 | 5.31 |
| Union Pacific | 4.10 | 3.14 | 3.05 |
| Industry | 8.23 | 7.28 | 5.32 |
Only two railroads, Canadian National (CNI) and Norfolk Southern (NSC) managed a Cash King Margin of over 10 percent. Additionally, CNI is the only railroad with a five year average Cash King Margin over 10 percent. In contrast, CSX and Union Pacific (UNP) are bringing up the rear. While both were profitable in 2006, CSX had the distinction of being the only railroad with a negative margin in 2005. However, CSX did improve its Cash King Margin by the most points year over year.
For further reading, the next post in the series is: Debt to Equity Ratio, the previous post is Foolish Flow Ratio, and the first post is: Railroad Performance Measures: Operating Ratio
notes:
* Which alert Prizzo Skeezy readers will recall measures actual cash