Tower Semiconductor Ltd. (TSEM) Cash Flow Statement

The OCF/NI ratio of 7.84 in 2026Q1 is an outlier, largely due to a massive working capital inflow, which may not be sustainable. Excluding that quarter, the ratio averages around 2.2, indicating that D&A is the primary bridge from net income to cash flow. Investors should monitor whether working capital swings normalize, as they can distort underlying cash generation.

The erratic FCF pattern is driven by working capital swings and a rising capex program, not by deterioration in core operations. Over the last four quarters, cumulative FCF is roughly $300M, which is modest relative to net income of about $240M, implying that capex is absorbing a significant portion of operating cash flow. The 2026Q2 FCF turned negative again, highlighting the need to assess the sustainability of capex-driven growth.

The capex-to-revenue ratio has consistently exceeded 25% and reached 40.6% in 2026Q2, well above the peer average of around 20-25%. This suggests Tower is investing heavily in growth, likely for advanced nodes or capacity, which could enhance future revenue but also increases depreciation and capital intensity. Investors should assess whether this elevated capex yields the expected returns, as it currently consumes most of operating cash flow.

The large positive working capital change in 2026Q1 likely reflects collections or inventory reductions, while the negative change in 2025Q4 suggests buildup or delayed payments. These swings are not unusual for a semiconductor manufacturer but warrant attention because they can mask the true cash-generating ability of the business. Over the ten quarters, cumulative working capital changes are roughly $150M positive, indicating a net source of cash, but the volatility complicates forecasting.

The absence of shareholder returns is consistent with a company in expansion mode, prioritizing capacity additions over distributions. This is not necessarily negative, but it means investors rely entirely on capital appreciation and future cash flows. Given the heavy capex, the company may need to generate higher returns on invested capital to justify the lack of current payouts.

While operating cash flow is robust, the gap between net income and FCF is substantial due to heavy capex, which totaled over $1.2B in the period. This divergence suggests that reported earnings are not yet translating into distributable cash, and the company is in a heavy investment phase. Investors should monitor whether the capex eventually generates sufficient incremental cash flow to close this gap.