While often overlooked by investors when analysing fundamentals, there’s no better insight into what’s left for you as a shareholder in a business once it’s paid all its bills than an analysis of cash flow. When it comes to assessing the investment quality of a company's cash flow, you should be attracted to those with sufficient money in the bank to fund their operations and produce an ongoing Funding Surplus. The greater a company’s Funding Surplus the more likely it is to avoid excessive borrowing, expand its business, pay dividends and withstand any economic downturns.
You need to be wary of well-known large-caps with unhealthy cash positions which may still attract uninformed investors due to their size. High profile stocks with large debt and poor cash flow – which contributes to poor Skaffold Scores - include: Sonic Healthcare (SHL), Seven Group Holdings (SVW), James Hardie Industries (JHX), Toll Holdings (TOL), Oil Search (OSH), Woodside Petroleum (WPL), Leighton Holdings (LEI), Asciano (AIO), Duet Group (DUE), Tabcorp Holdings (TAH), Transurban (TCL), Brambles (BXB), Origin Energy (ORG), SP AusNet (SPN), APA Group (APA) and Sydney Airport Holdings (SYD).