6.29Finding companies with strong cash flow
1What is it?
Look for positive operating cash flow every year, CFO roughly equal to net profit, and positive free cash flow.
2Why does it exist?
Cash pays bills, dividends and growth. Strong cash generators rarely go bust.
3Quick revision
- CFO positive and ≈ net profit.
- Positive FCF.
- Cash is harder to fake than profit.
4Knowledge check
Q1. Healthy CFO-to-profit relationship?Show answer
CFO close to or above net profit over several years.
Q2. Why is cash harder to fake?Show answer
It must actually exist in the bank.
Q3. What is FCF?Show answer
CFO minus capex.