Free Cash Flow
Free cash flow is cash from operations minus the capex needed to keep and grow the business — cash that could leave the firm.
Definition
Free Cash Flow refers to cash that could leave the firm. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Equity risk premia compress or expand with earnings paths and factor regimes. When cash that could leave the firm shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what free cash flow is saying. If cash that could leave the firm moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
Separate index beta from residual; know the sector and factor loadings of the claim. Prefer a short written null hypothesis for Free Cash Flow: what would falsify the current reading in the next window?