Our research shows that investing in the top cash flow companies can help you to earn strong returns in a more consistent and conservative manner. To demonstrate the value of this investment strategy, we tested the investment criteria for our Cash Flow Honor Roll in a 13 year historical back test. The results of this back test were then compared to the S&P 500 performance over the same time period.
The results show that investing $1.00 at the start of 1998 in a S&P 500 index would be worth $1.56 on June 30, 2011 (Q2 2011). However, investing $1.00 at the start of 1998 based on our Cash Flow Honor Roll criteria would be worth $7.42 on June 30, 2011.
To show how the top cash flow companies consistently outperform the market, we compared each year of our historical back test to the S&P 500.
The results show that investing in these strong cash flow companies produced a 18.34% average annual return, while the S&P 500 produced an average of 4.55% average annual return. The back test also outperformed the market in 11 of 13 years.
The results of this back test provides strong evidence as to why the cash flow statement is so important to investors. Based on our research, we have designed Cash Flow Statement 101 to be the premier resource for cash flow statement analysis. Professional and do-it-yourself investors are are using Cash Flow Statement 101 to find those investments which match the DNA of successful companies.
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Methodology
The historical back test begins on January 1, 1998 and ends on June 30, 2011. The Cash Flow Honor Roll criteria was defined and the hypothetical trades were made monthly. All non-financial U.S. equities with a market cap of at least $300 million that met the criteria were “purchased” at the beginning of the month. The stocks were then evaluated again at the start of the following month. Any stocks that no longer met the criteria were “sold” and those that continued to meet the criteria remained in the portfolio. This process was repeated at the beginning of each month while tracking the Cash Flow Honor Roll and S&P 500 performance. The annual returns chart includes data through December 31, 2010, as 2011 is currently an incomplete year.
