Your question is Reconcile Operating Cash Flow Decline. Take a moment with it on the right.
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You are reviewing Q3 results for a mid-sized B2B data and analytics company, and your manager asks you to explain why cash generation weakened even though reported profitability improved. You have access to the quarter's income statement and the working-capital movements pulled from FactSet Fundamentals. Assume U.S. GAAP and use the indirect method to analyze cash flow from operations. Your goal is to determine what drove the change in cash flow and whether the quarter's cash performance is a warning sign or a timing issue.
| Metric | Q3 |
|---|---|
| Net income | $18.0M |
| Depreciation & amortization | $6.0M |
| Stock-based compensation | $4.0M |
| Increase in accounts receivable | $14.0M |
| Increase in deferred revenue | $5.0M |
| Increase in accounts payable | $3.0M |
| Capital expenditures | $11.0M |
| Q2 cash balance | $72.0M |
How would you perform the cash flow analysis for the quarter, what is operating cash flow and free cash flow, and what would you conclude about the underlying quality of cash generation based on these movements?