HP Inc. (NYSE:HPQ)

The analysis of the cash flow data over the six-year period reveals significant fluctuations in the company's financial performance related to its operating activities and free cash flow generation.

Net cash provided by operating activities

The net cash generated from operating activities showed a peak in 2014 at $12,333 million, followed by a sharp decline to $6,490 million in 2015. This downward trend continued, reaching its lowest point in 2016 at $3,230 million. After 2016, there was a gradual recovery with modest increases in 2017 and 2018, ending at $4,528 million in the latter year. Despite the recovery, the cash inflow from operations in 2018 was significantly lower compared to the 2013 and 2014 figures.

Free cash flow to the firm (FCFF)

Free cash flow followed a similar pattern to net operating cash flows but with more pronounced declines. Starting strong at $9,716 million in 2013 and slightly increasing to $9,729 million in 2014, FCFF decreased sharply to $3,753 million in 2015 and continued declining to its lowest at $2,843 million in 2016. There was a gradual improvement in FCFF in 2017 and 2018, ending at $4,148 million. This indicates a recovery phase but still reflects restrained free cash generation relative to the earlier years.

Overall, the data demonstrates a period of strong cash generation prior to 2015, followed by a steep decline and a slow recovery phase through 2018. The decline in both operational cash flow and free cash flow between 2014 and 2016 may suggest challenges during this period, such as increased operating expenses, capital investments, or other financial pressures affecting liquidity and cash availability. The upward trend after 2016 indicates improved operational efficiency or better cash management, although cash flow levels remained below earlier peak values.

Effective Income Tax Rate (EITR)

The effective income tax rate shows significant variability over the six-year period. Beginning at 21.5% in 2013, the rate increased slightly to 23.5% in 2014. However, there was a notable sharp decline in 2015 to 3.8%, indicating a substantial reduction in tax expense relative to income during that year. Following 2015, the rate rebounds to a higher level, reaching 29.1% in 2016, which is the peak in the period analyzed. The subsequent two years, 2017 and 2018, showed a decrease and stabilization in the tax rate around 23%, suggesting a return to more normalized tax conditions after the fluctuation observed in previous years.

Interest Expense Paid, Net of Tax

The interest expense paid, net of tax, reveals a downward trend over the reported years with some minor fluctuations. Starting at a high of 657 million USD in 2013, the expense decreases to 519 million USD in 2014 and then slightly declines again to 512 million USD in 2015. A substantial reduction occurs in 2016, with interest expense dropping to 225 million USD, less than half the 2013 amount, suggesting efforts to reduce debt-related costs or refinancing at lower rates. The interest expense remains relatively stable after this decline, with minor increases to 248 million USD in 2017 and 252 million USD in 2018, indicating a plateau in interest obligations following the prior decreases.

Enterprise Value (EV)

The enterprise value exhibited significant fluctuations over the examined period. It increased from approximately $64.4 billion in 2013 to a peak of about $77.8 billion in 2014. Subsequently, there was a marked decline in 2015 and 2016, reaching as low as $27.0 billion in 2016. Afterward, the enterprise value showed a moderate recovery, rising to nearly $35.4 billion by 2018.

Free Cash Flow to the Firm (FCFF)

The free cash flow to the firm remained relatively stable around $9.7 billion during 2013 and 2014 but experienced a sharp decrease in 2015, dropping to approximately $3.8 billion. This decline continued into 2016 with a further reduction to about $2.8 billion. From 2017 onwards, there was a gradual improvement in FCFF, increasing to $3.4 billion in 2017 and reaching $4.1 billion by 2018.

EV/FCFF Ratio

The ratio of enterprise value to free cash flow to the firm increased over the period, indicating a relative increase in valuation multiples despite the declining free cash flow. It started at 6.63 in 2013, rose to 8.0 in 2014, and remained steady around 7.9 in 2015. The ratio peaked at 10.3 in 2017, suggesting the company was valued more highly relative to its cash generation. In 2018, the ratio decreased to 8.55, reflecting a partial normalization consistent with the recovering cash flow and stabilizing enterprise value.

Overall Trends and Insights

The data reveals a period of volatility in both enterprise value and free cash flow to the firm. The substantial decline in both EV and FCFF between 2014 and 2016 may indicate operational challenges or market conditions affecting valuation and cash generation. The subsequent recovery in free cash flow, coupled with a moderate increase in enterprise value after 2016, suggests an improvement in financial performance or investor confidence. The rising EV/FCFF ratio through most years reflects a higher premium placed on the company relative to its cash flow, potentially due to expectations of future growth or changes in market sentiment. The decline in this ratio in 2018 may indicate a realignment between valuation and cash flow fundamentals.