π΅ Free Cash Flow Calculator
The cash a business truly generates.
Free cash flow
Estimates for planning only, not financial advice.
Free cash flow is the cash a business generates after paying for the assets it needs to operate: operating cash flow minus capital expenditures. With operating cash flow of $4.2M and CapEx of $1.5M, free cash flow is $2.7M, a 64.3% FCF margin on operating cash flow. This is the money available for dividends, buybacks, debt repayment, or acquisitions.
How to Use This Calculator
Pull operating cash flow from the cash flow statement and subtract capital expenditures (usually shown as purchases of property and equipment). Enter both in the same units.
Enter operating cash flow from the cash flow statement, not net income.
Enter capital expenditures for the same period.
Read free cash flow and the FCF margin. To value the whole firm on its cash flows, continue to our FCFF calculator.
The Free Cash Flow Formula
Operating cash flow starts from net income and adds back non-cash charges like depreciation, then adjusts for working capital changes. Subtracting CapEx leaves the cash the business produced after maintaining and growing its asset base. Positive FCF means the company funds itself; negative FCF means it is burning cash or investing heavily, and the story depends on which. Growth companies often run negative FCF for years while building, which is fine if the investments earn returns, and fatal if they do not.
Worked Example
Operating cash flow of $4.2M minus CapEx of $1.5M gives FCF of $2.7M. The FCF margin is 2.7 / 4.2 = 64.3%: nearly two-thirds of operating cash survives the CapEx bill. That $2.7M can pay a dividend, retire debt, or fund an acquisition without new borrowing. Contrast a manufacturer with OCF of $10M and CapEx of $12M: FCF is -$2M, meaning the business consumed $2M more than it generated, which must come from cash reserves or financing.
What FCF Tells You That Earnings Do Not
Earnings can be managed with accruals; cash is harder to fake. A company reporting rising profits but flat or falling FCF deserves skepticism, because the cash is not following the accounting. FCF yield, FCF divided by market cap or enterprise value, is the valuation ratio value investors actually use: a 7% FCF yield means the business returns 7 cents per dollar of value each year before growth. Watch for CapEx timing games, though. A company can flatter one year's FCF by deferring maintenance CapEx, borrowing growth from the future.
My rule: trust FCF trends over single years, and always ask where the cash went. FCF that funds buybacks at fair prices creates value; FCF hoarded at 1% returns destroys it. For the equity holder's slice after lenders are paid, our FCFE calculator takes the next step.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is free cash flow?
Operating cash flow minus capital expenditures: the cash a business generates after funding the assets it needs to run. It is the pool available for dividends, buybacks, debt paydown, or acquisitions.
Why use cash flow instead of net income?
Net income includes non-cash accruals and accounting choices that cash flow strips out. A business can report profits while bleeding cash if receivables pile up. Cash is the stricter test of performance.
Is negative free cash flow bad?
Not always. Young or expanding companies often burn cash to grow, which is rational if the investments earn high returns. It is bad when a mature business bleeds cash with no growth story, or when the burn never ends.
What is FCF margin?
Free cash flow divided by operating cash flow (or revenue), showing what share of cash generation survives CapEx. Higher margins mean a lighter, more cash-generative business model. Software often exceeds 30%; heavy industry struggles to reach 10%.
What is FCF yield?
Free cash flow divided by market capitalization or enterprise value. It is the cash return you buy per dollar invested, before growth. Value investors compare it against bond yields and across peers.
Maintenance vs growth CapEx: does it matter?
Yes. Maintenance CapEx keeps the lights on; growth CapEx builds the future. Some analysts compute FCF on maintenance CapEx only, which flatters growth companies. Know which version a quoted FCF uses before comparing.
Can companies manipulate free cash flow?
Less than earnings, but yes: stretching payables boosts operating cash flow temporarily, and deferring CapEx flatters FCF this year at next year's expense. Multi-year trends expose the games.
How does FCF relate to dividends?
Sustainable dividends are paid from FCF, not earnings. A payout ratio above 100% of FCF means the dividend is funded by debt or asset sales, which is a countdown, not a policy.
What is the difference between FCF and operating cash flow?
Operating cash flow is the starting point; FCF subtracts the CapEx needed to sustain the business. A firm can post record operating cash flow and still have zero FCF if it is reinvesting everything, which is common in capital-intensive growth phases.