Ritesh Presswala Moneycontrol News
Smart investors like companies which can generate free cash flow (FCF) on a consistent basis. It goes without saying that companies with a solid FCF have certain advantages. They are more likely to pay dividends, issue buybacks, and even pay off their debt, on top of keeping aside the extra cash for valuable acquisitions.
Free cash flow is used to measure how much cash is left in the hands of a company after it spends money required to maintain or expand its asset base. It is calculated as operating cash flow minus capital expenditures.
Companies with a high FCF are more resilient and can overcome price shocks, if any, in a short time.
Moneycontrol ran an analysis of companies which generated consistently double-digit growth in cash flows in the last four fiscal years. From the BSE universe only seven companies passed the criteria which includes companies like Divis Laboratories, ERIS Lifescience, Gujarat State Petronet, Malu Paper, Maruti Suzuki, Max Financial, NHPC and UltraTech Cement.
The stock prices of these companies also reflected their strong FCF situation. Four out of the seven have doubled price returns in the last five years. Stocks prices of these seven stocks rose between 40 percent and 490 percent in the same time frame.
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