Free Cash Flow Calculator
Operating cash flow minus capex, plus margin and yield.
How free cash flow is calculated
Free cash flow measures the cash a business actually generates once the capital spending needed to sustain its operations and growth has been paid for. It matters because it is much harder to distort than net income — it is built from real cash movements rather than accounting estimates like depreciation schedules or accruals — which is why analysts often use it as a discount-rate input for DCF valuation alongside a company's WACC.
The formula is: FCF = Operating Cash Flow − Capital Expenditure. Using this calculator's defaults — $85M operating cash flow, $20M capex, $400M revenue, and a $1.2B market cap — FCF is $85M − $20M = $65M, giving an FCF margin of $65M / $400M = 16.25% and an FCF yield of $65M / $1.2B ≈ 5.4%. For a fuller picture of what's driving that operating cash flow, pair this with the DuPont Analysis calculator, which breaks down the profitability and efficiency behind the underlying business.
Frequently asked questions
- Why is free cash flow considered harder to manipulate than net income?
- It's based on actual cash movements rather than accrual accounting judgment calls (depreciation schedules, revenue recognition timing, provisions) — though capex timing itself can still be managed.
- What is FCF yield useful for?
- Comparing how much free cash flow a company generates relative to what the market is paying for it — a higher yield can indicate the stock is cheap relative to the cash it throws off (or that the market expects the cash flow to decline).
- What is free cash flow (FCF)?
- Free cash flow is the cash a company generates from its operations after accounting for the capital expenditure needed to maintain and grow its asset base. It represents cash that is genuinely available to pay down debt, pay dividends, buy back shares, or reinvest — without needing external financing.
- Why is FCF more useful than net income?
- Net income includes non-cash accounting items like depreciation and can be affected by one-off gains, provisions, or revenue recognition timing. FCF strips those out and shows the actual cash the business produced, which is why many investors treat it as a cleaner measure of underlying performance.
- What is FCF margin, and what is a healthy FCF margin?
- FCF margin is free cash flow as a percentage of revenue — it shows how much of every dollar of sales converts into free cash. A margin above 10–15% is generally considered healthy for a mature company, though capital-intensive industries (manufacturing, telecoms, utilities) typically run lower margins than asset-light software or services businesses.
- What is FCF yield, and how is it used for valuation?
- FCF yield is free cash flow divided by market capitalization, expressed as a percentage — it tells you how much cash the company generates relative to what the market is paying for it. Investors use it similarly to a dividend yield or earnings yield: a higher FCF yield can signal an undervalued stock, though it can also reflect the market pricing in an expected decline in cash flow.
- What is the difference between FCF and operating cash flow?
- Operating cash flow (OCF) is the cash generated purely from core business operations, before any capital spending. Free cash flow takes OCF and subtracts capital expenditure, so FCF is always lower than (or equal to) OCF for a business that spends anything on capex.
- Can FCF be negative, and is that always bad?
- Yes — FCF is commonly negative for fast-growing companies that are investing heavily in capacity, or for capital-intensive businesses mid-way through a large build-out. Negative FCF is only a warning sign if it persists without a clear path to future cash generation; temporary negative FCF during a deliberate growth phase is normal.