Market corrections in London and across the globe have changed the dialog for equity analysts, argues Aswath Damodaran in his most recent blog post. “There has been more talk of earnings than of revenue or user growth this year, and the notion of cashflows driving value seems to be back in vogue.”

Unfortunately, he continues, “Free cash flow is one of the most dangerous terms in finance, and I am astonished by how it can be bent to mean whatever investors or managers want it to, and used to advance their sales pitches.”

Damodaran suggests that the investor community should return to the basics as defined by business valuation standards and practices.

I believe that any measurement of free cash flow has to begin with a definition of to whom those cash flows accrue. Since a business can raise capital from owners (equity) and lenders (debt), the free cash flows that you compute can be to just the equity investors in the business, in which case it is free cash flow to equity, or to all capital providers in the business, as free cash flow to the firm.