When assessing ASX shares, investors often focus on a company's net profits to get a good understanding of its ability to be self-sustaining. However, there's another important metric that is essential to the survival of a company over the long term: free cash flow.
In a way, this is the 'true' cash that is generated by the company. This figure measures profitability excluding non-cash expenses and includes capital expenditure. In other words, this is the amount of money that is actually available to the company and its shareholders.
Today, we are covering three ASX shares inside the All Ords Index (ASX: XAO) that are providing the financial equivalent of a torrential downpour in free cash flows.
ASX shares with impeccable free cash flow
To set the scene, the importance of free cash flow is now dawning on newer investors. Many are experiencing their first cycle of investing throughout interest rate increases. As a result, the era of cheap access to capital is drying up. This means it is crunch time for business model fundamentals.
Illustrious entrepreneur Sir Richard Branson once said:
Never take your eyes off the cash flow, because it's the lifeblood of business.
On that note, we better dig into a few ASX shares with ample lifeblood. Here are three ASX All Ords shares that have plenty of free cash flow:
Magellan Financial Group Ltd (ASX: MFG)
The Australian-based fund manager, Magellan, has been going through a stretch of turmoil since losing one of its key clients. In response, shareholders have doused the company in disappointment and offloaded shares swiftly. This had led to this ASX share losing a staggering 70% from its 2021 high.
Yet, profitability has remained intact in spite of the whirlwind. For the last 12 months, Magellan has recorded free cash flow of $402.6 million on revenue of $788.8 million. At a free cash flow margin of 51%, the company appears to be in fit condition to continue to rain down cash for shareholders.
National Storage REIT (ASX: NSR)
While the next substantial free cash flow producer isn't technically an ASX 'share', this real estate investment trust (REIT) is certainly worth a mention.
National Storage is one of the largest storage providers across the Australiasia region with a total of 214 sites. Management has consistently sought out acquisitions and expansion over the last 12 months, adding 12 centres to its portfolio.
Based on the last 12 months, National Storage achieved a free cash flow margin of ~59% on $248.7 million of revenue.
Pro Medicus Limited (ASX: PME)
The last ASX All Ords share making an appearance in this list is medical imaging software provider Pro Medicus. Although this is the largest company by market capitalisation out of the three covered, it is, counterintuitive, the one with the smallest revenue.
However, Pro Medicus is often heralded by many shareholders as a high-growth company, warranting its 115 times [price to earnings] P/E ratio. That aside, there is no arguing the healthcare business is a healthy free cash flow producer.
With a 51% free cash flow margin, this ASX share is able to keep itself afloat for the time being.
