Two key indicators of a company’s financial health

I find one of the best indicators of a company’s health is its ability to convert a majority of its accountings earnings to operating cash. Due to nature of accrual accounting and revenue recognition policies, statutory numbers can over or understate actual future profitability. It is a lot harder for a company to manipulate an operating cash number, which makes it a key number for investors to focus on. Free cash is also a very useful metric to watch as it demonstrates the company’s ability to finance growth and reinvestment within its current capital structure.