Free Cash Flow (FCF)
What is Free Cash Flow?
Free Cash Flow is the cash a company generates after operating expenses and capital expenditures — the cash actually available to fund growth, repay investors, or extend runway.
Free cash flow summarizes operating cash remaining after capital expenditures. It can reveal a different picture from revenue growth or accounting profit. For a SaaS business with annual prepayments, a strong quarter may partly reflect collection timing, so the cash flow bridge matters as much as the final number.
Also known as: FCF
Formula
FCF = Operating Cash Flow − Capital Expenditures | Variable | Meaning |
|---|---|
Operating Cash Flow | Cash generated by core operations over the period. |
Capital Expenditures | Cash spent on long-lived assets such as equipment or capitalized software. |
How to use it
- Take operating cash flow from the cash flow statement for a defined period. Use the reported cash figure, with its working-capital effects, rather than substituting net income.
- Subtract capital expenditure cash outflows using a consistent scope. State how capitalized software development is classified in your reporting.
- For FCF margin, divide FCF by recognized revenue from the same period. Compare the result across several periods and reconcile major timing effects.
Worked example
Hypothetical worked scenario
A fictional company reports $500,000 operating cash flow, spends $100,000 on capital expenditures, and recognizes $2 million revenue in the year.
FCF = $500,000 − $100,000 = $400,000. FCF margin = $400,000 ÷ $2 million = 20%.
If $250,000 of operating cash came from unusually early customer payments, the reported FCF remains $400,000. A separate scenario excluding that timing benefit produces $150,000, which helps assess repeatability.
Calculate with your numbers
FCF = Operating Cash Flow − Capital Expenditures | Variable | Meaning |
|---|---|
Operating Cash Flow | Cash generated by core operations over the period. |
Capital Expenditures | Cash spent on long-lived assets such as equipment or capitalized software. |
Worked example
- Operating Cash Flow
- $500,000
- Capital Expenditures
- $100,000
- Revenue (same period)
- $2,000,000
- → Free Cash Flow
- $400,000
- → FCF Margin
- 20%
Enable JavaScript to use the interactive calculator.
Open the Free Cash Flow calculator for a focused view of the inputs.
What the result tells you
Use the result to ask how the business finances its commitments. Positive FCF can support investment or strengthen the cash balance, but it is not automatically distributable cash after all financing obligations. Keep debt repayments, restricted cash, and other material commitments visible in a broader cash forecast.
Assumptions and common mistakes
- FCF is not a single standardized accounting line across every company. Read the stated reconciliation before comparing.
- Do not subtract the same capitalized cost twice if it is already reflected in the cash input you selected.
- An ARR denominator creates a different ratio from FCF margin; use period revenue for this calculator.
Frequently asked questions
Can a profitable company have negative FCF?
Yes. Working-capital needs and capital spending can consume cash despite accounting profit. Examine the cash flow statement to identify the cause.
Can FCF be negative in the calculator?
Yes. Operating cash outflow or capital expenditure above operating cash generation produces negative FCF. A positive revenue input is required for a meaningful margin.
Sources and methodology
The references below explain the underlying methods. Our worked scenarios use hypothetical figures; they are not company results or current market benchmarks.
- Stripe: Cash flow computation
Operating cash flow minus capital expenditures.
Found an error or a definition that differs from your reporting? Send a correction with the page URL and the method you use.