<Certain participants on this thread seem to use FCF as their first screen.>
Well, speaking as a "certain participant," I would say that I use FCF as a major screen. The title of this thread is, after all, "Free Cash Flow as a Value Criterion."
I don't use FCF as a "first" or "only" screen, for a variety of reasons. One of them is that if you do that, all you will turn up is financial companies.
I run a whole variety of screens, because what I am looking for is a company that is outstanding in as many areas as possible, not just FCF. I ALWAYS screen for low debt. Other things I screen for: a history of good, steady sales/eps/cash flow growth, and eps consistency; relative strength; efficiency (ROA, ROE), etc.
I then research the companies that appear most frequently on these various screens.
Do I make projections about future (free) cash flow? No, and I won't make projections about the FUTURE until I am convinced that this or that method of calculating PRESENT and PAST cash flows is the superior one. The future, after all, is only an extension of the past.
Which leads me back to the question I posed earlier: What do you think, everyone? Should "changes in working capital" be included in cash flow calculations, as is done in the 10-K and 10-Q cash flow statements ("operating' cash flow), or excluded (as per Morningstar)? |
