Thermo Fisher Scientific Inc. (TMO) Cash Flow Statement

The OCF/NI ratio averaged roughly 1.2 over the past year, but the wide dispersion—from 0.48 in Q1 2025 to 1.80 in Q4 2024—suggests that working capital swings, not just profitability, drive cash generation. The Q1 2026 dip to 0.72 appears tied to a $1.1B negative working capital change, which may reflect timing of collections or inventory build. Investors should monitor whether this volatility is seasonal or signals a structural shift in cash conversion.

The sequential improvement from Q1 2026's 7.4% margin suggests a recovery in cash generation, likely supported by stronger revenue and working capital release. However, the FCF margin is still below the 20%+ levels of peers like Danaher and Mettler-Toledo, indicating that TMO's heavier services mix may cap cash flow conversion. The gap between FCF and net income narrowed in Q2 2026, but the trajectory remains uneven, warranting close attention to quarterly volatility.

TMO's capital intensity is low compared to industrial peers, suggesting that its asset-light services and consumables model requires less fixed investment. The modest CapEx levels—ranging from 2.6% to 4.2% of revenue over the past year—imply that maintenance needs are manageable, and growth investments are likely focused on high-return areas like bioprocessing capacity. This supports the view that TMO can sustain healthy FCF margins if revenue growth continues.

The large positive working capital in Q3 2025 likely reflects strong collections and favorable payment terms, while the negative swings in Q1 2026 and Q2 2025 suggest inventory build-ups or slower receivables. These fluctuations appear to be a primary driver of the uneven OCF/NI ratio, and they may indicate that TMO's distribution-heavy business is sensitive to supply chain dynamics. Investors should monitor whether these swings are seasonal or point to a structural change in working capital efficiency.

The company appears to be returning significant cash to shareholders through buybacks, which have been a consistent feature over the past year, while also pursuing large M&A, as evidenced by the $8.9B acquisition outflow in Q1 2026. This dual strategy suggests management is confident in its ability to generate cash, but it also increases financial leverage, as reflected in the reported Debt/Equity of 0.74. The pace of buybacks may be intended to offset dilution from stock-based compensation, though SBC data is sparse.

The cumulative OCF/NI ratio of approximately 1.2 suggests that TMO's earnings quality is solid, with cash conversion benefiting from non-cash charges like D&A and favorable working capital timing. However, the quarterly volatility in this ratio—ranging from 0.48 to 1.80—implies that investors should not extrapolate from a single quarter. The persistent gap between OCF and net income may also reflect the impact of large acquisitions, which can distort working capital and cash flow patterns.