I always look at a company's cash-flow generation and reconcile this with operating profit to see how much profit is actually being converted into cash. The higher the figure the better as strong cash flow can not only be used to cut debt, but also enables boards to raise dividends and support investments. My optimal rate for cash conversion is a ratio of 85 to 100 per cent.
Cash-flow generation
This article is part of Simon Thompson's guide to successful stock picking
