Skip to main content

The Georgia Tech Financial Analysis Lab conducts unbiased research on issues of financial reporting and analysis. Unbiased information is vital to effective investment decision-making. Accordingly, we think that independent research organizations, such as our own, have an important role to play in providing information to market participants.

Because our lab is housed within a university, all of our research reports have an educational quality, as they are designed to impart knowledge and understanding to those who read them. Our focus is on issues that we believe will be of interest to a large segment of stock market participants. Depending on the issue, we may focus our attention on individual companies, groups of companies, or on large segments of the market at large.

A recurring theme in our work is the identification of reporting practices that give investors a misleading signal, whether positive or negative, of corporate earning power. We define earning power as the ability to generate a sustainable stream of earnings that is backed by cash flow. Accordingly, our research may look into reporting practices that affect either earnings or cash flow, or both. At times our research may look at stock prices generally, though from a fundamental and not technical point of view.


Quarter 3, 2015
Free Cash Margin Index:
Recession Lows

1.74%, 4.22% (Dec. 2000, Dec. 2008)


4.97% (Sep. 2015)

Recent High

7.69% (Dec. 2009)

February 2016

Median free cash margin increased to 4.97% for the twelve months ended September 2015, up from 4.67% for the twelve months ended June 2015 and from 4.49% in September 2014. The metric remains in the middle of a historical range of between 4.50% and 5.50%. A decrease in the overall cash cycle (due to a decrease in accounts receivable days) continues to be the primary driver of the increase. Operating cushion, or operating profit before depreciation, declined modestly to 15.19% from 15.77% in September 2014, driven by a decline in gross margin and an increase in selling, general and administrative expense as a percent of revenue. Capital expenditures to revenue were unchanged at 3.23%.

Continued meager topline growth suggests an economy that is growing, but struggling to grow. Median revenues within our sample increased to $618.37 million, up from $616.09 million for the twelve months ended September 2014. However, median revenues fell slightly from $629.26 in June 2015.

Overall, accounting data for the twelve months ending with the third quarter of 2015 show some signs of weakness to recent trends of a steadily growing economy. Looking at individual industry groups for the reporting period ending September 2015, free cash margin was higher in eight industry groups, stable in eight, and lower in four.

Data for this research were provided by S&P Capital IQ’s Compustat database..

Download this Report

Accounting Practices in the Software Industry, 2014 and 2015

January 2016

For software companies, all software development costs incurred prior to technological feasibility are expensed as R&D. Once technological feasibility is reached software development costs are capitalized up to the point of completion and product release. At this point, amortization of capitalized costs begins.

Determining technological feasibility and the timing of software development completion entails management judgment, creating flexibility in capitalization policies. Given this flexibility, it can be difficult to compare financial results across firms in the software industry. The purpose of this study is to survey policies for software development capitalization during 2014 and 2015 (fiscal years ending between July 1, 2014 and June 30, 2015). The results are then compared with similar studies conducted in 2006 and 2010.

Overall, 61% of the software companies in the sample expensed all software costs incurred. Of the remaining 39% that capitalized costs, the average percentage of software costs incurred that were capitalized was 18.1%. These results show a small shift from the 2006 and 2010 studies where approximately 70% of the sample expensed all software costs incurred. In addition, in the 2006 and 2010 studies, the companies that capitalized software costs had an average rate of capitalization of 20% and 15%, respectively.

Download this Report

View Past Reports


Earnings Quality: Reports on Individual Companies and Industries

In these reports we examine one or more dimensions of earnings quality: the cash flow support of earnings, the sustainability of earnings, or the quality of the balance sheet.


EQI, The Cash Flow Support of Earnings: Industry Review, 01.08.13


EQI, the Cash Flow Support of Earnings:  Homebuilding Industry, 04.23.15


The Sustainability of Earnings: Selected Companies, 12.09.14


EQI, The Cash Flow Support of Earnings: Industry Review, 03.02.15


Excel Spreadsheets of Cash Flow Data and Graphs by Industry

Quarter 3, 2015

0. All Industries (non-financials)
1. Energy
2. Materials
3. Capital Goods
4.  Commercial & Professional Services
5.  Transportation
6.  Automobiles & Components
7.  Consumer Durables & Apparel
8.  Consumer Services
9.  Media
10.  Retailing

11.  Food & Staples Retailing
12.  Food, Beverage, & Tobacco
13.  Household & Personal Products
14.  Health Care Equipment & Services
15.  Pharmaceuticals, Biotech, & Life Sciences
16.  Software & Services
17.  Technology Hardware & Equipment
18.  Semiconductors & Equipment
19.  Telecommunication Services
20.  Utilities