Usually, analysts fixate on the “net income” part of the income statement. However, operating cash flow is the lifeblood of a company and is a better metric of a company’s financial health for two main reasons. First, cash flow is harder to manipulate and second, a company that does not generate cash over the long term is on its deathbed.
One of the measures of balance sheet bloat is scaled total accruals (STA). STA = (net income minus cashflow from operations) divided by total assets. By ranking STA smallest first, and filtering only for situations where both net income and cashflow are positive, you end up with a list of profitable companies ordered by balance-sheet efficiency.
We aggregated income statements from the past 5 years and ranked companies based on STA. The 10 best:
BHARTIARTL [stockquote]BHARTIARTL[/stockquote]
EROSMEDIA [stockquote]EROSMEDIA[/stockquote]
USHAMART [stockquote]USHAMART[/stockquote]
ABAN [stockquote]ABAN[/stockquote]
INFRATEL [stockquote]INFRATEL[/stockquote]
WHEELS [stockquote]WHEELS[/stockquote]
ALKYLAMINE [stockquote]ALKYLAMINE[/stockquote]
SUVEN [stockquote]SUVEN[/stockquote]
SUBROS [stockquote]SUBROS[/stockquote]
and the 10 worst:
VINATIORGA [stockquote]VINATIORGA[/stockquote]
ICRA [stockquote]ICRA[/stockquote]
NAVNETPUBL [stockquote]NAVNETPUBL[/stockquote]
AIAENG [stockquote]AIAENG[/stockquote]
ECLERX [stockquote]ECLERX[/stockquote]
HERCULES [stockquote]HERCULES[/stockquote]
IMPAL [stockquote]IMPAL[/stockquote]
MOIL [stockquote]MOIL[/stockquote]
WABCOINDIA [stockquote]WABCOINDIA[/stockquote]
BLISSGVS [stockquote]BLISSGVS[/stockquote]
Note: we ignored stocks that don’t had 5 years worth of statements.
The problem with a stand-alone STA measure that it doesn’t track changes in balance-sheet health. More on that later…
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