"It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Price-to-Free-Cash-Flow ratio
I look for profitable companies with PFCF multiple of less than 15 times. That multiple implies a FCF yield of around 6.6 percent—which looks very attractive in low interest rate environment.
Return on Capital Employed
It is great to know that a company is profitable and generate a free cash flow. But we should also check if management has a track record of successful reinvesting that profit and increasing shareholders value. There are many cases when a profitable company buys mediocre barely profitable businesses for enormous price destructing shareholders value. I look for companies with ROCe > 20%.