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Many investors believe that a company's free cash flow is one of the more important fundamental metrics in evaluating an equity investment. Some have argued that Wall Street's focus is on revenue and earnings, which are more easily manipulated through accounting, without direct concern for calculating the actual money that a business is generating.

Free cash flow (FCF) is operating cash flow minus capital expenditures. FCF is the cash that a company made after paying out the money required to maintain and/or expand the business. Free cash flow enables a company to pursue acquisitions and growth initiatives, among other options. FCF may also allow a company to initiate or increase dividends.

I screened the market for Canadian companies with valuations of at least $50 million U.S. dollars that are not in the financial sector. Amongst them, I looked for those with trailing earnings (income) that have a current price to FCF of under 10.

Symbol

Company

Industry

Market Cap

P/FCF

CEF

Central Fund of Canada Limited

Industrial Metals & Minerals

$5.3 B

4.54

COT

Cott Corporation

Beverages - Soft Drinks

$740 MM

7.99

GTU

Central GoldTrust

Gold

$977 MM

6.24

OTC:HBP

Helix Biopharma Corp.

Medical Appliances & Equipment

$65.7 MM

8.77

MERC

Mercer International Inc.

Paper & Paper Products

$470 MM

2.65

RIMM

Research In Motion Limited

Diversified Communication Services

$14.54 B

6.03

UFS

Domtar Corporation

Paper & Paper Products

$3.89 B

3.76

FCF can sometimes look deceptively undervalued when a company is under significant risk or where a company's recent revenue and/or earnings are not from continuing business operations. While on its own, free cash flow is likely insufficient to base an investment decision upon, it is an important metric and one that is rarely provided. Such information can help you get a greater understanding of the fundamentals of businesses and identify proper investments.

Disclaimer: This news article should not be construed as personalized investment advice as it does not take into account your specific situation or objectives.

Source: 7 Canadian Equities With Strong Free Cash Flow