Investing in companies with strong balance sheets reduces the risk of permanent capital loss and allows companies financial flexibility to pursue strategic opportunities whenever they present themselves. The Manager investigates the financial strength of companies by analyzing the balance sheet and cash flow pattern. Companies that have a stronger balance sheet with little or no debt, or companies that have reported very stable growing cash flows in the recent past, will get a higher conviction level for financial strength than companies that have lots of debt or very volatile cash flows patterns. Highest conviction companies have excellent liquidity and a net cash/debt position that is attractive compared to peers or the industry. They produce significant free cash flow. They have a financial performance well within debt covenant limits. Lowest conviction companies have illiquid balance sheets with small cash positions and assets tied up in questionable inventories and receivables. The free cash flow production is either erratic or consistently negative. The financial performance violates or nearly violates debt covenants.