People love organic food which contains no unnatural ingredients such as pesticides or fertilizers.  They increasingly crave food that will allow them to live healthier, longer, and cheaper due to the rising cost of health care. Organic grocery store chains Whole Foods Market (WFM) and Sprouts Farmers Market(SFM 0.72%) certainly reap the benefit of this increasing consumer preference.

However, it always pays to do your research to see if these companies grow their revenue and cash flow. Companies that can grow cash flow increase shareholder value, boost dividends, and most importantly reinvest in the business. Let's take a look under the proverbial hood and see how these companies perform.

Source: Motley Fool Flickr by John Bromels

An organic pioneer
The first Whole Foods Market opened its doors in 1980.  As of the most recent quarter, the company operated 374 stores. Over the past five years Whole Foods Market grew its revenue, net income, and free cash flow 70%, 403%, and 122%  respectively. Year to date, Whole Foods Market grew its revenue and net income 10% and 4% respectively.  Comparable store sales increases of 5% and the opening of 12 new stores contributed to the recent increases in revenue and net income.  However, Whole Foods Market's free cash flow declined 27% so far this year due to increased capital expenditures on store expansions.

Whole Foods Market possesses an excellent balance sheet with cash and short-term investments clocking in at 27% of stockholder's equity. The company harbors no long-term debt which represents a good thing as interest can choke out profitability and cash flow over the long term.  Whole Foods Market paid out 34% of its year to date free cash flow in dividends.Currently the company pays its shareholders $0.48 per share per year and yields around 1.3% annually.

Sprouting competition
The success of Whole Foods Market enticed new entrants into the marketplace such as Sprouts Farmers Market. Founded in 2002, Sprouts Farmers Market is relatively young and has expanded  to 171 stores as of the most recent quarter.  The company competes on price under the motto, "Healthy Living for Less."

Over the past two years, the time that data is available for this company, Sprouts Farmers Market grew its revenue, net income, and free cash flow 36%, 163%, and 93%  respectively. Similarly, in the most recent quarter, Sprouts Farmers Market grew its revenue, net income, and free cash flow 26%, 86%,  and 61% respectively. New store expansion and comparable store growth of 13% served as catalysts for recent revenue and net income expansion.  Lower capital expenditures due to timing of payments for store openings, remodeling, and capital maintenance contributed to the increase in free cash flow. 

Sprouts Farmers Market's balance sheet isn't as good as Whole Foods Market. Its cash comes in at 26% of stockholder's equity. However, its long-term debt to equity ratio registers at 54%.  It's preferable for a company's long-term debt to equity ratio to reside at 50% or less. Sprouts Farmers Market does not currently pay a dividend.

Now what?
Whole Foods Market represents a well-established company with a rock solid balance sheet and no debt with a small dividend to boot. It also operates a larger chain of stores which means it garners greater purchasing power and an ability to survive on lower prices. Moreover, Whole Foods sports a profit margin of 4% versus 2% for Sprouts Farmers Market.

However, Sprouts Farmers Market represents a much smaller chain meaning it has more room to expand. Both Whole Foods Market and Sprouts Farmers Market merit more of your research time.