Of the host of financial metrics investors might consider when deciding whether to buy shares of a target company, cash flow is among the most important. Operating cash flow is a reflection of how a firm actually functions on a day-to-day basis and demonstrates the company's ability to bring in money from sales or other sources and to adequately pay salaries, taxes, and other expenses. Free cash flow, on the other hand, shows what is left over to the company after accounting for operating expenses and capital expenditures (CapEx)—this is the discretionary cash available for things like expansion, shareholder returns, mergers and acquisitions, and more.
A company's cash flow keeps it operating, supports the possibility of growth and expansion, and lowers the risk of bankruptcy. Many investors also find it a metric that is more difficult to manipulate in a financial report than net income, which may look better or worse depending upon accounting methods. Heading into the new year, investors looking for strong cash flow might start with some of the firms below.
