Investing By Watching The Cash Flow

Martin D. Sass is now 67 and chairman of MD Sass, which invests $7 billion mostly via separately managed accounts. "I am religious about cash flow," says Sass. "To me it's the most important number." start with the "cash flow from operations" statement. This essentially consists of net income with noncash charges (like depreciation and deferred taxes) added back and cash-draining events (like an inventory pile-up) taken out. Now subtract maintenance-level capital expenditures.

Sass likes companies trading at low multiples of their free cash flow--low, that is, in relation to rivals today or the same company in past years. He also looks for a reason--or "catalyst" in analyst-speak--that might make investors turn more enthusiastic about the stock

Source: Forbes


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