Free Cash Flow Margin

How to read it

The numerator is free cash flow: Operating Cash Flow plus the net change in property, plant and equipment and the net change in intangible assets. Those asset changes are usually outflows, so they normally reduce the total. The denominator is Revenue. The margin rises when operating cash grows faster than sales or investment spending slows, and falls when the company spends more on assets or its operations bring in less cash. stockrow shows it for each year and the trailing twelve months.

What is typical

Software, internet and other asset-light companies tend to convert a large share of sales into free cash, while manufacturers, utilities, retailers and resource companies generally keep far less because they must keep investing in plant and equipment. Companies in a heavy building phase can show a negative margin for a while. Compare the value with the sector medians rather than with businesses of a different kind.

Pitfalls

The asset changes are net, so proceeds from selling assets offset spending and can lift the margin in a year when the company sold property or a division. Operating cash flow can swing with working capital — collecting receivables early or delaying payments to suppliers — without any lasting change in the business. A single year can therefore say less than the trend over several.