Investing legend Peter Lynch once said, "Know what you own, and know why you own it." 

With that said, plenty of good investment ideas can be found in relatively unknown companies. Snack sellers J&J Snack Foods (NASDAQ:JJSF) and Snyder's-Lance (NASDAQ:LNCE) may represent good ideas. However, it always pays to research the company fundamentals to look for growth in revenue, net income, and free cash flow and to determine their ability to retain some of that cash for reinvestment back into the business.

Icees and pretzels
J&J Snack Foods sells snacks and frozen beverages under names such as Superpretzel, Icee, and California Churros. The company distributes these products to convenience stores, supermarkets, and other retail outlets.  

Over the past 10 years J&J Snack Foods grew its revenue, net income, and free cash flow 108%, 184%, and 99%, respectively.  J&J Snack Foods sits on a good balance sheet with cash and long-term debt to equity ratios registering at 14% and 0.08%, respectively, in the last quarter. 

Low amounts of debt mean less interest costs over the long-term. In general, investors should look for companies with long-term debt to equity ratios of 50% or less. J&J Snacks Foods' year to date operating income exceeded interest expense by an incredible 608 times.  The rule of thumb for safety resides at five times or more.

J&J Snack Foods pays a dividend. The best way to gauge the underlying strength of a company's dividend is to look at the dividend to free cash flow ratio for a full year. Free cash flow doesn't get distorted as much by accounting manipulation, unlike earnings per share which can be artificially inflated by share repurchases.

Last year J&J Snack Foods paid out a frugal 22% of its free cash flow in dividends. Currently the company pays its shareholders $1.28 per share per year and yields 1.4% annually.

Crackers and chips
Snyder's-Lance sells snacks such as potato and pretzel chips under brand names such as Snyder's of Hanover, Tom's, and Pretzel Crisps.  Snyder's-Lance expanded its fundamentals at a healthy pace over the past 10 years growing its revenue, net income, and free cash flow 212%, 217%, and 109%, respectively. 

Snyder's-Lance doesn't possess as much cash on its most recent balance sheet. Its $5.6 million balance equates to less than 1% of stockholder's equity. However, its long-term debt to equity ratio equates to 51%.  Operating income clocked in at 8 times earnings in the most recent quarter. 

Last year, Snyder's-Lance paid out 59% of its free cash flow in dividends which resides a little in the high range.  Currently the company pays its shareholders $0.64 per share per year and yields 2.3% annually.

What should you do?
J&J Snack Foods definitely possesses the better balance sheet with more cash and less long-term debt. The company isn't resting on its laurels as it recently expanded its frozen snack and beverage offering with the acquisition of Philly Swirl. 

Snyder's-Lance recently expanded its line of products with the acquisition of Baptista's Bakery.  The company also wants to focus on expanding its distribution of its core brands and recently sold off its private brands.However, investors may want to take their capital elsewhere due to Snyder's-Lance's inferior balance sheet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.