Not all recessions are alike. The current downturn, for instance, stirs a memory in Charles Mulford of how different the situation was 35 years ago.

It was 1974, the first year of a two-year recession sparked by the Federal Reserve’s tight-money policy. Mulford, now an accounting professor at Georgia Tech who directs the university’s Financial Analysis Lab, recalls the scene as he flew into the Tampa airport to begin a new job at an accounting firm. “They had all these fields fenced off next to the airport. There were acres and acres of cars —new cars— just lined up,” he says.

That was long before just-in-time supply chains took hold. “Back then companies didn’t manage inventory like they do now. They just kept producing, and they’d worry about selling later. Now, I think, managers are much more proactive, and if there’s any hint of a slowdown, they’re very quick to cut inventory,” he told CFO yesterday.

That hair-trigger sensitivity to consumer demand is borne out in the second-quarter inventory figures culled by the lab, according to Mulford. The figures come from the researchers’ ongoing study of free-cash margins at all publicly traded companies outside the financial-services sector with current market caps of $50 million or more (a total of 3,518 companies). They found that a hefty drop in median inventory days more than offsets slight upticks in historically low median accounts-payable days and accounts-receivable days.

The implication? With buying and selling activity cooling down, corporations aren’t letting a whole lot of new inventory into the shop. For example, A/R days (the number of days needed to collect the ending balance in accounts receivable at the year’s average rate of revenue per day) rose from 45.9 days in the quarter ending in March to 46.3 days in the one ending in June. Both figures are, however, a long way down from a year ago — 55.1 days in June 2008.

Of course, notes Mulford, “someone’s receivable is someone else’s payable.” The slight increase in A/R days was matched by similar movement in accounts-payable days, which rose from 22.7 in the March quarter to 23.5 in the June quarter. (Accounts-payable days are the number of days it would take to pay the ending A/P balance at the average rate of cost of goods sold per day.)

In contrast, the researchers found a nearly two-day drop in inventory between the March and June periods, from 22 days to 20.8 days. In June 2008, inventory days (the number of days it would take to sell the ending balance in inventory at the average rate of cost of goods sold per day) stood at 24.2.

Indeed, it’s been cuts in corporate inventory, capital spending, and tax payments — rather than increased profits — that have driven a rise in free cash margin (free cash flow measured as a percentage of revenue), according to a new report by the lab on its “Free Cash Margin Index,” which looks at companies over trailing 12-month periods.

For the 12 months ended in June, for instance, free cash margin jumped to 4.76%, up from the recession low of 4.12% reached in December 2008 and a rise from the 4.60% for the 12 months ended March 2009. The results suggest, according to the report, that “the much-discussed turnaround in the U. S. economy remained on track.”

The question, however, is whether the recovery will take a solid “V” shape or collapse again into a double-dip “W.” A gloomy aspect of the rise in free cash margin is that it was accompanied by a decline in operating cushion (operating profit exclusive of noncash expenses, depreciation, and amortization). Among the companies the researchers looked at, the median operating cushion dipped to 14.63% during the 12 months ended June 2009 from 14.69% in March 2009 and 15.13% in December 2008.

That decline in profitability will make a recovery hard to sustain, according to Mulford and his colleagues. “While the continued improvement in free cash margin is a positive development and consistent with the improvements noted in share prices since early March, the long-term viability of the recovery will require a return to improving profitability,” they write.

The drop in profits, however, is being “muted and offset” by declines in income taxes paid and capital spending, as well as the cuts in inventory, according to the researchers. Income taxes paid, measured as a percent of revenue, slid to 0.99% in the June reporting period from 1.05% in March and 1.12% in December 2008. Absent changes in tax rates, corporations pay less in income tax as their operating profits drop, they note.

Similarly, spending cuts have played a role in the growth of free cash margins. Capital expenditures measured as a percentage of revenue dropped to 3.76% in the 12 months ended in June 2009 from 3.90% for the 12 months ended in March 2009 and 4% for the 12 months ended in December 2008.

But a sustained economic recovery will require increases in capex, Mulford thinks. “Companies are maintaining free cash margin while everything is getting smaller, and how long can that be maintained? That’s an open question,” he says. “How long will small be beautiful?”