Keysight Technologies, Inc. (KEYS) Cash Flow Statement

The OCF/NI ratio has consistently exceeded 1.0x in the last three quarters, suggesting that reported net income is being backed by actual cash generation rather than accruals. The negative working capital changes in 2026Q3 (-$120M) appear to reflect timing of collections and payables, but the overall trend indicates that earnings are translating into cash effectively. This improvement aligns with the revenue acceleration and suggests that the company's growth is not consuming cash disproportionately.

The FCF trajectory shows a clear inflection point starting in 2026Q1, with FCF margins consistently above 25% for three consecutive quarters. This compares favorably to the peer group, where FCF margins range from -8.3% to 16.6%, indicating KEYS is generating superior cash returns. The gap between net income and FCF has narrowed, with FCF exceeding net income in 2026Q3 by $103M, suggesting that depreciation and non-cash charges are providing a cushion to cash generation.

The low capital intensity relative to revenue suggests that KEYS is not heavily investing in physical capacity, which is consistent with its shift toward software and services. The negative CapEx figures in some quarters (e.g., -$29M in 2026Q2) may indicate asset sales or timing adjustments, but the overall trend shows maintenance-level spending rather than aggressive expansion. This disciplined approach allows the company to return significant cash to shareholders while still funding R&D, which is the primary driver of its competitive moat.

The working capital line has been the most volatile component of operating cash flow, with negative changes in four of the last five quarters. This appears to be driven by the lumpy nature of large government and aerospace contracts, which can cause receivables to spike before payments are received. The negative working capital changes in 2026Q3 (-$120M) may indicate that the company is investing in inventory or extending credit to customers, but the overall cash conversion remains strong, suggesting that these swings are manageable.

The acceleration in buybacks aligns with the strong FCF generation, with cumulative buybacks of $501M over the last two quarters. The company has not paid dividends, which is consistent with a growth-oriented technology firm that prefers to reinvest in R&D and acquisitions. The $2B acquisition in 2025Q4 (likely ESI Group) was a significant cash outflow, but the subsequent FCF recovery suggests the integration is not straining the balance sheet. Investors should monitor whether buybacks continue at this pace or if management shifts toward M&A again.

The cumulative gap between operating cash flow and net income is substantial, indicating that the company's earnings are of high quality and not inflated by aggressive accruals. This surplus has been driven by significant non-cash charges like depreciation and amortization, which have consistently exceeded CapEx, allowing the company to generate excess cash. The divergence suggests that reported earnings may understate the true cash-generating power of the business, which is a positive signal for valuation.