Excellent point of operating Cashflow of BSE being negative as per Screener Data. While the business model indicate that BSE should be free cashflow generating business, your post validly raised concern about why operating cahsflow being negative. Even I was surprised that I did not bother to check operating cashflow and just wen with assumption that stock exchage is free cashflow generating machine. So peronally was surprised when find that BSE has negative operating cashflow for most of years.
In order to understand cashflow better, I gone through itemwise operating cashflow from annual report over 5-6 years. I have combined heards in broad categories to my best understanding.
From my working, I realise two main factor contributing to volatile cash flow for BSE.
On first part, while for other manufacturing/service business, interest income is not operational cashflow and hence deducted from operational cashflow in accounting standard, same being applied to BSE. However, interest income on float is core business opeating income to BSE in my opinion and hence shall be consider as core operating revenue. I have added interest income in the operating cashflow in order to get true operating cashflow.
On working capital change, one more volaitlity is added due to Settlement obigation. Since BSE has now daily settlement, at the end of day, there is net amount to be paid to selling brocker versus buying brocker. While total purchase is equal to total sales and hence there should be no liability on BSE, ICCL being subsidiary honouring the settlement, the liability of account of settlement is appeaing in consolidated financial as Settlement obligation payable. There shall be matching assets on receivable amount from brocker. I am also not expert on account but that shall be case given every purchase on stock exchange shall corrosponding sale.
So in my understanding, one shall look at Operating cashflow before working capital change (at least in cosolidated account of BSE) and inclusive of Interest income which shall be true comparable to Free cashflow in my opinion.
I am enclosing my working in excel for everone reference. There may scope for error due to my limited understanding and would appreciate if other member highlight same.
Disclosure: BSE is among my Top 10 holding and my view may be biased due to my investment.
BSE cashflow calculation FY18.xlsx (12.8 KB)