When Gilead Sciences (NASDAQ:GILD) reports its fourth-quarter and 2016 full-year results on Feb. 7, investors will examine its financial performance in detail. They'll look for clues that might predict what will happen next for the big biotech. What's the single most important number for Gilead Sciences? I'd say its cash flow. Here's why.

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Cash flow is king

The old saying that "cash is king" is true in most cases. However, I think that cash flow is an even greater king.

At the end of the third quarter, Gilead reported $31.6 billion in cash, cash equivalents, and marketable securities. That's an impressive number that many (including me) often point to in highlighting one of the best things about the company.

But since Gilead didn't make a big acquisition during the fourth quarter, it's likely that its cash position is going to be higher when the biotech reports its results in a few days. Why? Its cash flow will have poured in even more money.

To be specific, I'm referring to Gilead's free cash flow. There are actually several types of cash flow, including cash flow from operations (or operating cash flow), cash flow from investing activities, cash flow from financing activities, total cash flow, and free cash flow. All of these names are pretty much self-descriptive except for free cash flow, which is calculated by subtracting capital expenses from operating cash flow.

Just how big is Gilead's free cash flow? When the company reported its financial results for the third quarter of 2016, Gilead had operating cash flow of nearly $13.2 billion for the first nine months of the year and capital expenditures of $579 million. That gave the biotech a free cash flow of $12.6 billion. Gilead is on track to report free cash flow for the entire year of well over $16 billion.

What about other financial metrics?

You might wonder why other financial metrics like revenue and earnings shouldn't be viewed as more important than free cash flow. Certainly, these metrics are key. However, I still think Gilead's cash flow, particularly free cash flow, is the most important number for the company.

Is it possible for a company's revenue to increase but the company's financial health deteriorate? Sure it is. A company that spends a lot more than it takes in will run into problems sooner or later. Because of this, you could argue that earnings are more important than revenue.

However, earnings can be deceiving. There are many ways a company can make earnings look better on paper. Free cash flow is more difficult to manipulate. Also, a company can report solid earnings but still have trouble paying its bills. That's because some expenses can be spread out over time for financial reporting purposes -- but they have to be paid immediately. 

What strong free cash flow means for Gilead

Because of its free cash flow, Gilead Sciences is one of only a handful of biotechs to pay a dividend. The company is also able to increase its dividend, as it did in February 2016 with a 10% increase. I expect another dividend hike is on the way that could perhaps get Gilead's dividend yield close to 3%.

Also because of its strong free cash flow, Gilead is able to buy back its stock (thereby making investors' shares more valuable). In the first nine months of 2016, the company spent a whopping $10 billion in repurchasing shares. 

While paying dividends and buying back shares reward shareholders, there's another thing that a sizable free cash flow means for Gilead that could be an even bigger story. There are around 450 biotech stocks traded on U.S. markets. Gilead's free cash flow is big enough to buy any of them except for the top 10 largest biotechs at current price levels -- without touching its huge cash stockpile.

Will Gilead's free cash flow decline for 2016 decline from the prior year? Yes. Sales for hepatitis C drugs Harvoni and Sovaldi continue to slide. But will a drop from $19.6 billion in free cash flow for 2015 to maybe $16.5 billion or so in 2016 impact Gilead's ability to increase dividends, buy back shares, and make acquisitions? Not really. The biotech should be able to easily afford to do all these things.

Cash flow cow

What Gilead has is a "cash flow cow." A wise dairy farmer will use proceeds from milking a cow to buy other cows, so that when the milk runs dry in the first cow there will still be more milk available. Is Gilead Sciences a biotech equivalent of a wise dairy farmer? I think so.

In November 2011, Gilead Sciences announced that it was acquiring Pharmasset for $11.2 billion. Gilead had free cash flow of roughly $3.5 billion in 2011. That acquisition led to Sovaldi, which led to Harvoni and Epclusa. And it led to Gilead's strong cash flow the company enjoys today.

So when Gilead reports its earnings results soon, certainly look at its revenue and earnings figures. But pay the closest attention to its cash flow. That's what's most important for Gilead's future.