Taiwan Semiconductor Manufacturing Company Limited (TSM) Cash Flow Statement

The persistent OCF/NI ratio above 1.0, except for a dip to 0.94 in 2025Q3, suggests that reported profits are well-backed by cash generation. The gap between net income and operating cash flow is modest and largely explained by non-cash depreciation, which has grown steadily to $198.5B in 2026Q2. This implies that earnings are not being inflated by aggressive revenue recognition or working capital accruals, reinforcing the reliability of TSM's profitability metrics.

The FCF trajectory is strongly upward, with a notable acceleration in 2026Q1 and Q2 as revenue growth outpaced capex increases. The FCF margin, though volatile due to lumpy capex, has averaged above 25% over the period, indicating that TSM converts a significant portion of revenue into discretionary cash. This cash generation supports continued investment in advanced nodes and shareholder returns, though the 2025Q3 dip to 14.1% highlights the impact of capex timing.

The consistently high capex-to-revenue ratio, well above the semiconductor industry average, indicates that TSM is prioritizing growth capex to expand advanced node capacity, likely for AI and HPC customers. Depreciation and amortization have grown in tandem, reaching $198.5B in 2026Q2, which suggests that the company is also replacing and maintaining its existing asset base. This capital intensity is a deliberate strategy to maintain technological leadership, but it also means that free cash flow will remain sensitive to capex cycles.

The negative working capital changes in several quarters, particularly 2026Q1 and 2025Q3, suggest that TSM is deploying cash into inventory and receivables to support rapid revenue growth. Conversely, positive changes in 2025Q1 and 2024Q4 indicate efficient collection and inventory management. These swings are not alarming given the scale of operations, but they do create quarterly volatility in operating cash flow that investors should monitor.

TSM's capital deployment is heavily skewed toward dividends, which have grown consistently each quarter, reflecting management's commitment to returning cash to shareholders. Buybacks are essentially absent, which may indicate that management views the stock as fairly valued or prefers to retain cash for reinvestment. The combination of rising dividends and massive capex suggests that TSM is balancing growth investments with shareholder returns, though the payout ratio remains modest relative to free cash flow.

The cumulative excess of operating cash flow over net income is approximately $1.47T, which is largely attributable to non-cash depreciation charges that have grown with the asset base. This divergence is a positive signal, as it suggests that TSM's earnings are not being inflated by aggressive accruals. The consistent OCF/NI ratio above 1.0 in most quarters reinforces the view that the company's profitability is of high quality and sustainable.