Why free cash flow factors?
Our factors are based on free cash flow, which represents the cash that a company generates through its operations after accounting for capital expenditures on fixed assets.
A truer representation
Most quality investing models take inputs based on company earnings. Despite accounting standards such as GAAP, management have significant discretion in:
Liability and asset assessment
Cost treatments (expense vs capitalize)
You can have more confidence in factors based on free cash flow because this data is far less open to management manipulation.
Research has shown free cash flow factors to be a more reliable indicator of strong and sustainable profitability. Compared to traditional quality investing, our model highlights companies that display higher potential to outperform the market over the medium to long term.1
Better for society
Companies identified by free cash flow factors tend to have very high environmental, social and governance (ESG) scores.1