GlaxoSmithKline plc (ADR) (GSK), Pfizer Inc. (PFE): Is Novartis AG (ADR) (NVS) a Cash King?

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Pfizer Inc. (NYSE:PFE) has also faced challenges related to the expiration of a patent, which caused Lipitor sales to drop by more than half. To protect its margins, the company cut its staff to reduce costs. Also, there is some hope in drugs that have recently emerged from Pfizer Inc. (NYSE:PFE)’s pipeline, including its Eliquis blood clot treatment and Xeljanz, which treats rheumatoid arthritis.

GlaxoSmithKline plc (ADR) (NYSE:GSK) hopes to benefit from its acquisition of Human Genome Sciences, which gave it the full rights to Benlysta, developed with Human Genome Sciences to treat lupus. The acquisition also gave GlaxoSmithKline plc (ADR) (NYSE:GSK) access to several drugs in the late stages of testing. The company is also looking to expand by pursuing growth opportunities in emerging markets. To this end, it has partnered with an India-based company to develop a single vaccine to guard against a variety of dangerous diseases including polio, hepatitis B, and whooping cough.

The cash king margin can help you find highly profitable businesses, but it should only be the start of your search. The ratio does have its limits, especially for fast-growing small businesses. Many such companies reinvest all of their cash flow into growing the business, leaving them little or no free cash — but that doesn’t necessarily make them poor investments. Conversely, the formula works better for slower-growing blue chips. You’ll need to look closer to determine exactly how a company is using its cash.

Still, if you can cut through the earnings headlines to follow the cash instead, you might be on the path toward seriously great investments.

The article Is Novartis a Cash King? originally appeared on Fool.com and is written by Jim Royal.

Jim Royal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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