Strong free cash flow is a hallmark of firms with moats, provided that the cash flow comes from ongoing operations and not one-time events. Remember, free cash flow represents the funds left over after a firm has already reinvested in its business to keep it running. It is usually defined as operating cash flow minus capital expenditures (both measures are found on the cash flow statement). If a firm's free cash flow as a percentage of sales is greater than 5%, you've probably found a cash machine and a good basis to dig deeper to see if the company has an economic moat.
Profit Margins >>