There are two parts to successful investing: finding the winners and avoiding the losers.

But looking just for the former, especially if you focus mostly on revenue and earnings, can leave you exposed to the latter.

In order to fully benefit from your winners, you need to spot the ones to stay away from. After all, a 200% gain is completely wiped out by four other picks dropping 50% each. As for that winner, revenue and earnings are not the place to see trouble coming in time to do some good. You don't want to wait for an ugly earnings surprise that gives your stock a massive haircut before getting out.

That's why just about the first thing I read is the balance sheet. This is where the company's financial health is found and where sickness' warning signs often show up.

One balance sheet tool I like is the cash conversion cycle. This shows how fast the company turns its cash into inventory, sells that inventory, and then collects the cash on those sales. It's measured in days and, generally, the lower it is, the better. (For details on how it's calculated, check the Foolsaurus investing wiki entry here.) It is possible to have a negative CCC, as Dell showed to great effect for several years. Seeing CCC increase can mean it's a company to avoid or exit.

This metric doesn't apply to every industry, however, such as banks. It's primarily for companies that interact with suppliers and customers, buying from one, selling to the other.

Here are three companies operating in the same industry that recently caught my eye:

Company

CCC (TTM)

1-Year Change

3-Year Change

5-Year Change

Monsanto (NYSE: MON)

272.6

27.0

31.8

(15.8)

DuPont (NYSE: DD)

124.0

(14.3)

(2.8)

(2.4)

Syngenta (NYSE: SYT)

182.1

(1.1)

10.5

(6.9)

Source: Capital IQ, a division of Standard & Poor's, and author calculations. TTM = trailing 12 months. All numbers are in days.

This is a very slow industry when it comes to moving cash through the system. Monsanto, unfortunately, is the worst of the lot and has been headed in the wrong direction for the past few years. DuPont, on the other hand, seems to be the best and has been moving toward faster cycles.

Of course, the cash conversion cycle should not be the end of your research, and it's best to follow trends over time. However, it can provide useful pointers to either getting in or staying away.

Go past the obsessive focus on quarterly earnings, and you'll be way ahead of the vast majority of the market's individual investors. By learning to calculate and use the cash conversion cycle, you'll more likely spot a deteriorating situation early enough to either avoid the company in the first place or get out before the company "surprises" with a bad earnings report.

Monsanto is a Motley Fool Inside Value selection. Syngenta AG is a Motley Fool Global Gains recommendation. Motley Fool Options has recommended a synthetic long position on Monsanto. Try any of our Foolish newsletter services free for 30 days.

Fool analyst Jim Mueller, who works with the Stock Advisor newsletter service, has a synthetic long on Monsanto. The Fool's disclosure policy has cycled through the company three times while you read this article, showing off on a unicycle.