Another ratio S&P Analyst Richard Tortoriello recommends to use is 'Free Cash Flow to debt'. ('Quantitative Strategies for Achieving Alpha') This ratio shows how long it would take a company to pay back its debt using its current level of free cash flow. In his study, Tortoriello found that investing in the top 20% of companies with the highest FCF/debt ratio generated substantially higher returns compared to the market.
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How to detect earnings manipulation and to avoid a permanent loss of capitalAfter all, you only find out who is swimming naked when the tide goes out.Warren Buffett There a basically two main reasons for a total loss of capitalcompanies that are cooking the books; financial statements manipulation and fraud bankruptcyIn most cases these risk are frequently found together.. more...