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? 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 Worldspace (NASDAQ:WRSP) -- a cash-burning company that CAPS overwhelmingly dislikes -- these are businesses with free cash flow-to-sales margins of 15% or higher (also known as the Cash King Margin) that our community is pretty bullish about.

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


Cash King Margin (ttm)

CAPS Bulls

CAPS Bears





Coach (NYSE:COH)




Companhia de Saneamento Basico do Estado de Sao Paulo (NYSE:SBS)




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 Sultan of Sims
With a whopping free cash flow-to-sales margin of more than 25%, Ansys takes the honors as this week's most prolific cash king. As one of the world's leading engineering simulation providers, Ansys has the trusted stress-testing models, internationally diverse revenue stream, and network of competent partners -- like Autodesk (NASDAQ:ADSK), Dassault Systemes (NASDAQ:DASTY), and Solid Edge -- to keep its fortress flush with cash.

In addition, All-Star firms Kaufman Brothers, Bank of America Securities, and Deutsche Securities -- whose picks we track on CAPS -- are all bullish on the Pennsylvania-based firm. ViciousChicken is yet another All-Star who hasn't let a lofty multiple stress him out in our CAPS simulation:

Good product, good industry. Some of their numbers scare me (126 P/E) but they keep improving each quarter. I believe their value will quickly improve over time.

Prince of Purse-a
The next monarch on our list is Coach, the most recognized luxury accessories brand in the United States. For the past several years, Coach has leveraged its scale (owning about a fifth of the market), a trendy brand synonymous with affordability and quality, and the booming popularity of luxury handbags to generate healthy cash flows for its shareholders.

Thanks to a competitive pricing point and effective branding efforts, CAPS All-Star Cobradon thinks Coach is poised to keep bagging the profits. You know, as long as people can afford it:

They sell good products at moderately high prices. The brand recognition has to have some effect. I think they will do just fine if the economy maintains its current pace. I rate this a buy for as long as middle American women can stay employed and buy to be trendy. If the economy should falter this one could suffer.

Ruling the world of water
Our last free cash flow king this week is Companhia de Saneamento Basico do Estado de Sao Paulo. The name is impossible to remember (try Sabesp for short), but the business model -- treating and distributing water in Sao Paolo, Brazil -- is as simple as it gets.

Sabesp's market dominance (servicing 367 of Sao Paolo's 645 municipalities), sheer size (58,000 kilometers of water-main infrastructure), and inflation-matching tariffs are what turn filthy sewage into clean cash for this ruler. CAPS All-Star StatsGeek, currently ranked fourth out of 30,382 players, soaks us with this refreshing pitch:

This is one of those companies that screams, "Buy me! Buy me now!" The stock has 3 things going in its favor: 1) Fundamentals are rock solid. Revenues are growing and valuation is low. Cash generation machine. 2) Psychology and sentiment -- water is hot and probably going to get hotter. 3) A play on the weakening dollar.

The Foolish bottom line
Free cash flow-generating companies like Ansys, Coach, and Sabesp 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 time, when I'll feature three more cash kings from CAPS. Until then, may your cash flow reign supreme.   

For more Foolish usage of free cash:

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