Free Cash Flow Research

Free cash flow is a more direct measure of corporate value creation than earnings. My research explores its application across quality investing, factor construction, portfolio strategy, and ETF implementation.

Core Thesis

Earnings are an opinion. Cash flow is a fact.

Traditional quality metrics rely on earnings-based measures that can be manipulated or distorted by accounting assumptions. Free cash flow — the cash a business generates after maintaining its capital base — provides a more rigorous foundation for identifying genuinely high-quality companies. Combined with Return on Invested Capital, it captures both the magnitude and efficiency of value creation.

Publications

A Better Approach for Quality Factor Exposure (April 2022) — Examines why traditional quality factor definitions fall short and proposes an FCF-based alternative.
Why Free Cash Flow Better Determines Profitability Than Earnings (September 2022) — Empirical analysis comparing FCF and earnings as predictors of future profitability.
Free Cash Flow Investing With Innovators (January 2022) — Demonstrates that companies investing heavily in R&D while generating strong FCF outperform.
Free Cash Flow Investing: Profitability or Yield? (April 2023) — Distinguishes between FCF as a quality signal versus FCF as a yield source.

Framework

The FCF quality framework incorporates four complementary signals:

FCF Margin — Operating cash flow efficiency
FCF Return on Invested Capital — Capital efficiency and franchise quality
Accruals Ratio — Earnings quality (low accruals = higher cash realization)
Capital Allocation Discipline — Prudent capex and shareholder distributions

Implementation

This research was implemented in the FCF Leaders ETF suite, where the FCF-ROIC methodology forms the core of the investment process across U.S. large cap, real assets, innovation, small cap, and fixed income strategies.

Tier 2 — Published research articles; Tier 1 — ETF implementation documented in SEC filings and CBOE interviews