Field Notes · 3 May 2026
Building a screen around free cash flow quality
Why cash conversion and maintenance capex matter more than headline earnings when filtering equities.
Earnings can be tidy while cash is messy. When we commission an equity screen for a client, free cash flow quality is often the first filter after market and size constraints.
We look at three practical angles:
- Conversion: How reliably does reported profit become cash from operations across a cycle, not a single year?
- Maintenance load: How much capital spending is required simply to keep the business standing still?
- Working-capital swings: Retailers and manufacturers can look cheap on earnings while inventory builds quietly.
A screen that ignores these angles tends to surface “cheap” names that are actually capital traps. In a recent Thai industrials mandate, three popular candidates failed the cash conversion check despite attractive earnings multiples; the discard log became the main discussion in the debrief.
If you want a screen built around cash quality rather than price momentum, see our Equity Screen Commission or read how the wider screening process sequences criteria.