3 Kings of Cash

Welcome back to another week in the world of the Cash Kings, where we help you pick out companies that generate a healthy dose of free cash flow. Why is free cash flow so important? Simple. Because it gives management the opportunity to boost shareholder value through actions like:

1. Paying dynasty-building dividends.
2. Buying back shares at attractive prices.
3. Growing the business organically without having to borrow money or sell shares.

A Fool's guide to free cash
Investing, after all, is about putting money up front today in order to get more of it in return tomorrow. Here at the Fool, we're firm believers that free cash flow, as opposed to traditional accounting earnings, is the best gauge of a firm's health and profitability (or lack thereof).

So, with these cash flow lessons deeply ingrained in your Foolish subconscious -- or maybe just bookmarked as a "favorites" page -- I'll highlight three more cash-cow favorites of our Motley Fool CAPS community.

Unlike a stock such as Sulphco (AMEX:SUF) -- which is a cash-burning company that CAPS players generally dislike -- these are companies with free cash flow-to-sales margins above 15% (also known as the Cash King Margin) that our community is quite bullish about.

So, sound the trumpets! Here's another trio of Cash Kings from CAPS:

As always, don't consider these stocks as formal picks but rather as suggestions worth further investigation. After all, due diligence is the Fool's way to riches.

But just for starters, here's a quick summary of these cash-throwing kings and how some of their loyal CAPS followers feel about them.

The Chinese emperor HIFU
With a monstrous free cash flow-to-sales margin of more than 35%, China Medical Technologies takes the honors as this week's most prolific cash king. As a world leader in cancer therapies using high-intensity focused ultrasound (HIFU), China Medical has the technological expertise, favorable demographics, and positive government trends -- including a multibillion-dollar investment in health care -- to keep its great walls awash with cash.

In addition, CAPS all-star iangmcd believes the company's offering of advanced in vitro diagnostic systems (IVD) -- which detect and monitor various diseases through blood and urine samples -- gives China Medical the opportunity to build a recurring source of revenue as well:

"They're effectively locking in long term business every time they sell one of these machines. In my opinion, this is going to give CMED the constant revenue stream it needs to keep growing while waiting for HIFU to get approval in foreign markets. Oh, and 0 debt, 54% (net) margins and a (cash) war chest of [approximately] 120M ($4+/share) sure don't hurt either." (It's worth noting, however, that since iangmcd made this post in January, CMED, in its third-quarter report, disclosed $150 million of long-term debt.)

A leader who knows his people
Equifax is a free cash flow ruler that utilizes unique information management systems as one the largest credit reporting agencies in the United States. Specifically, Equifax maintains a proprietary database of information -- regarding more than 400 million consumers and businesses worldwide -- in order to provide quality financial, demographic, and marketing information.

Thanks to superb financials, coupled with the heightened importance of protecting credit information, heywolfie1015 believes Equifax will have no problem maintaining its industry-leading identity:

"This is a long-term hold: Solid industry, wide moat, competitors that are actually allies, solid assets, nice return on equity, yearly dividends ... This one will just inch up over the long haul. It's not exciting, but it's a keeper."

The king and quant of the Northwest
Our last free cash flow king this week is aQuantive, a world leader in digital marketing services and technologies. With an impressive roster of clients -- including the likes of Coca-Cola (NYSE:KO), Kraft (NYSE:KFT), and New York Times (NYSE:NYT) -- this Seattle-based monarch sits in a grand position to benefit from the growth of online advertising.

It's that type of demand for aQuantive's pioneering solutions and attractive global opportunities that has our CAPS community excited about the firm's future. For example, fellow Fool Rick Munarriz (who goes by the name TMFBreakerRick in these parts) gives us the skinny on some of aQuantive's marketing exploits:

"The world and associated ad budgets are migrating online and aQuantive is there to be the helping hand. It can do some pretty amazing things (like the redesign of Carnival Cruiseline's site) and the ordinary stuff too (like manage paid search campaigns). It's a keeper."

The Foolish bottom line
Free cash flow-generating companies China Medical Technologies, Equifax, and aQuantive are always among my top candidates to research further. Our Motley Fool CAPS intelligence database is a great place to look for your own Cash Kings, or read how your fellow Fools feel about thousands of different stocks.

Click here to join the forward-thinking CAPS community free of charge.

Be sure to join us next week when I'll feature three more cash kings from CAPS. Until then, may your free cash flow reign supreme.

For more CAPS-style Foolishness:

• 7 Highly Rated Stocks on Sale
• 5 Tightly Squeezed Stocks
• 5 Fresh IPOs

New York Times and Kraft are Motley Fool Income Investor picks. Coca-Cola is an Inside Value choice. aQuantive is a Rule Breakers selection.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. The Fool's disclosure policy is the strict set of principles that always rules Fools.