Zimmer Biomet Holdings, Inc. (ZBH) Cash Flow Statement

The OCF/NI ratio has been consistently above 1.0, averaging around 2.3 over the past year, suggesting that earnings are well-backed by cash generation. The spike in 2026Q2 is partly due to a lower net income, but the absolute OCF of $807M is the highest in the period, indicating strong operational cash generation. This suggests that accruals are not inflating earnings, and the quality of earnings appears solid.

After a volatile 2025, FCF margins have shown improvement, with 2026Q2 reaching 32.9%, well above the 2024 average of around 15%. This is driven by a significant increase in operating cash flow and relatively stable capex. The FCF trajectory appears to be stabilizing at higher levels, which may support continued capital returns and debt reduction.

CapEx has been relatively stable, ranging from 2.3% to 6.3% of revenue, with the higher figure in 2025Q4 likely due to a one-time investment. The low capital intensity suggests that ZBH's asset base is mature, and the company is not in a heavy expansion phase. This allows for higher free cash flow conversion, which is evident in the strong FCF margins.

The working capital line has been a major source of variability in operating cash flow, with negative changes in most quarters, indicating cash outflows from working capital. This could be due to inventory builds or slower collections, but the pattern is inconsistent. Investors should monitor whether this is a seasonal pattern or a sign of operational inefficiency, as it directly impacts cash flow predictability.

ZBH has been actively returning capital to shareholders, with buybacks increasing significantly in recent quarters, reaching $500.8M in 2026Q2. This is complemented by consistent dividend payments of around $47-49M per quarter. However, the company also engaged in acquisitions, with net cash outflows of $1.2B in 2025Q3, suggesting a balanced approach to capital allocation. The sustainability of such high buybacks will depend on continued strong cash generation.

The cumulative gap between operating cash flow and net income is substantial, with OCF totaling $4.36B versus net income of $2.05B. This suggests that earnings are understated relative to cash generation, possibly due to high non-cash charges like D&A. This divergence is a positive signal for cash flow quality, but it also implies that the company's profitability metrics may not fully capture its cash-generating ability.