The two focus points for successful companies is cash flow and debt. In order to survive in the long run, companies need to generate cash and keep debt low. Low debt (or leverage) not only keeps a company's interest costs down, it also gives it more flexibility to invest its hard-earned cash back into the business so that it can expand and develop new products.

Fund managers and High Net Worth Individuals consider Cash flow as a key measure to invest. Companies with consistent cash flow can finance their own growth, and therefore can stand on their own two feet.

As an investor one way to identify potential winners is to look for companies with high cash flows and low debt. Low debt and high cash flow together makes a company’s valuation attractive. Low debt and high cash flows are two factors that decide on the return on equity. Return on equity is viewed as a measure of how efficiently a company deploys its capital.

I frequently use the following criteria to pick winners and I have also been successful. I look for companies with gross profit margins and returns on equity of above 50%. After identifying such companies I further filter them based on the debt -to-equity ratio. I look for companies with a long-term debt-to-equity ratio of below 5%.

Microsoft is one good example. The software empire, which makes popular products such as Microsoft Windows, the Xbox videogame system and MSN.com, has continued to rake in the profits year after year without using debt to finance its growth. The $255 billion market cap behemoth has been growing earnings at a 22.1% pace over the long term (based on the average of the three-, four- and five-year earnings per share figures), but it has no long-term debt, one of the reasons why investment firms give it high marks. According to a stock market newsletter, Mr. Warren Buffett is an extremely conservative investor, and he takes a good look at a company's debt before investing in it.

With a little research you can also identify many similar nuggets and invest your money in them.