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How to Find Cash Cows

By Daniel Sparks - Apr 23, 2013 at 11:15AM

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Add this ratio to your investing toolbox. You won't regret it.

Long-term investors are often searching for excellent businesses that generate plenty of cash. But how do you find these cash cows? In the video below, Fool contributor Daniel Sparks suggests investors use the ratio of free cash flow to sales. The ratio shows what percentage of every dollar of sales ultimately ends up as free cash flow -- the cash companies can use to pay out dividends, buy back shares, or save for future acquisitions at some point when they make strategic sense.

To illustrate, Daniel compares Apple (AAPL 0.11%), Google (GOOGL -0.16%), Baidu (BIDU 3.10%), IBM (IBM 0.44%), and Nokia (NOK 0.61%).

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Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$140.52 (0.11%) $0.16
Nokia Corporation Stock Quote
Nokia Corporation
$4.93 (0.61%) $0.03
International Business Machines Corporation Stock Quote
International Business Machines Corporation
$134.39 (0.44%) $0.59
Alphabet Inc. Stock Quote
Alphabet Inc.
$2,116.10 (-0.16%) $-3.30
Baidu, Inc. Stock Quote
Baidu, Inc.
$119.32 (3.10%) $3.59

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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