“Excluding asset sales, we had our best cash flow performance since the merger,” said ExxonMobil Chairman and CEO Darren Woods during the energy giant’s earnings call on Wednesday. “This enabled us to reduce net debt to 5%, fortifying the balance sheet and positioning us to continue our strategy of counter cyclically investing.”
Free cash flow is the sum of net cash provided by operating activities and net cash flow used in investing activities. This measure is useful when evaluating cash available for financing activities, including shareholder distributions, after investment in the business.
It is also, according to investment manager FCF Advisors, a far better way to measure long-term profitability than GAAP earnings.
Bob Shea, CIO of FCF Advisors, told VettaFi that his firm believes that “GAAP earnings have significant disadvantages,” and “accounting practices allow a lot of leeway and discretion to management.” Meanwhile, “the ability to manipulate and distort free cash flow is a lot more difficult than with earnings.”
“Over the last several quarters, the market has been demanding profitability, and we’ve been measuring profitability through free cash flow,” Shea added.
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FCF Advisors specializes in free cash flow investment strategies, primarily through its Free Cash Flow Quality Model (FCFQM), a multi-factor model featuring a combination of quality measures informed by the firm’s research.
ExxonMobil is the third largest holding in FCF Advisors’ flagship strategy, the FCF US Quality ETF (TTAC), which aims to outperform the Russell 3000 through a fundamentals-driven investment process that selects about 150 stocks based on free cash flow strength. Its holdings are then weighted by a modified market-cap log transformation, allowing increased exposure to companies with the strongest proprietary free cash flow rankings.
ExxonMobil makes up 2.04% of TTAC’s net assets as of February 2.
TTAC’s portfolio will also be rated with an ESG score, excluding companies with low ESG ratings. Firms with an extreme rise in share count and increase in leverage are excluded.
For more news, information, and analysis, visit the Free Cash Flow Channel.