003 Net Income vs Free Cash Flow

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Which one to choose, or both?

Written post: http://stockpickinginsights.com/net-income-or-free-cash-flow-both/

What you do with the information is up to you.

I’m conservative in my approaches, so I use a softened Net Income (3Y Average) pre-adjusted for D&A undercharges. You can take it a step further and use the lowest of the two metrics. I also take a look at differences between the two.

Most importantly, keep in mind that both can be manipulated. Big differences between them should trigger a warning and further research.

You can check out the battle between Enterprise Value ratio and PE Ratio here.

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