Quality of FCF - analysis and metrics

Hey, are there certain metrics or bridges used to assess the quality of FCF? For instance, how is the FCF is analyzed if a large portion derives from adding back D&A? Any leads would be helpful.


If there is a large add back from D&A it isn’t necessarily a red flag in and of itself, given that it should be offset by Capex. If FCF is higher because capex is <1x depreciation then that may indicate higher capex in future periods and lower FCF. I don’t know if there’s any standard metrics that can indicate quality FCF, it’s generally going to be case by case, but I would look at capex in relation to depreciation as a starting point and try and determine how much of capex is maintenance vs investing for growth, and determine if FCF is likely to be higher or lower in future periods based on actual capex spend vs realistic capex needs and the capex habits of competitors.