Welcome back to the world of the Cash Kings, where we highlight businesses that generate a healthy dose of free cash flow. Why is 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-flow rulers of our Motley Fool CAPS kingdom.

Unlike a stock such as Evergreen Energy (NYSE:EEE) -- which is a cash-burning company that CAPS generally dislikes -- these are businesses with free cash flow-to-sales margins higher than 15% (also known as the Cash King Margin) that our community is overwhelmingly bullish about.

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


Cash King Margin (ttm)



Endo Pharmaceuticals (NASDAQ:ENDP)




Ambassadors Group (NASDAQ:EPAX)




Macrovision (NASDAQ:MVSN)




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.

Endo the emperor
With a whopping free cash flow-to-sales margin of more than 35%, Endo Pharmaceuticals takes the honors as this week's most prolific cash king. As a world leader in the growing market of pain management, Endo has the mammoth sales force of more than 500 representatives, steadily progressing pipeline, and a solid stable of branded products -- like Opana, Frova, and Percocet -- to keep its canons stuffed with cash.

In addition, CAPS player Wicon believes the company is well-positioned to handle the looming expiry of its top drug, Lidoderm -- a product which accounts for more than 60% of Endo's revenues:

"This company is specialized in a niche area -- pain management, and is clearly the market leader. Expiration of Lidoderm patents is still years away, and the company has already launched new products and has two more new products in phase III. It has sufficient time to balance out the potential pitfall of Lidoderm patents. Recent weakness provides a good entry point."

Sovereign ambassador
Ambassadors Group is a free cash-flowing ruler that utilizes exclusive agreements with reputable, private-label student programs to be one of the leading educational travel companies in the world. Specifically, Ambassadors provides students with opportunities to learn abroad through the "People to People Ambassador Programs," which were founded by President Eisenhower back in 1956.

Thanks to decades of experience conducting these unique programs, rock-solid financials, and interesting growth opportunities, our own TMFPlatoish believes the ambassador has been granted immunity from measly market returns:

"They are growing at a 15-25% rate annually and have extremely healthy free cash flow. This looks to be an extremely healthy business ... They pay a nice dividend to boot and are sitting on a $6.00 per share cash hoard that could be used to strategically grow the company through acquisitions. Sweet looking outfit. Outperform."

Vision protection
Our last free cash flow king this week is Macrovision, the global leader in content protection and digital rights management (DRM) technologies. Macrovision's antipiracy solutions allow more than 50,000 software vendors -- from video game developers like Electronic Arts (NASDAQ:ERTS) to operating system providers like Microsoft (NASDAQ:MSFT) -- to ardently protect their intellectual property.

It's demand of that sort -- within the burgeoning field of copy protection technology -- that has our CAPS community excited about Macrovision's competitive position. For example, CubanGiants gives us his big-picture macro-vision of the company's prospects:

"Long-term success of the company bodes well for weathering any anti-copy protection storms. There are possible synergies with InstallShield & most popular products. Category of protection will be huge."

The Foolish bottom line
Free cash flow-generating companies Endo Pharmaceuticals, Ambassadors Group, and Macrovision 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 cash flow reign supreme.

For more CAPS-style Foolishness:

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Microsoft is a Motley Fool Inside Value pick. Electronic Arts is a Stock Advisor choice. The Fool's disclosure policy is the strict set of rules that always rules Fools.