Quick answer
Free Cash Flow = Operating Cash Flow − Capital Expenditures. Example: OCF $12M − CapEx $3M = FCF $9M. FCF represents the cash left after maintaining and growing the business — available for dividends, buybacks, debt repayment, or acquisitions.
How to use this calculator
Enter Operating Cash Flow from the cash flow statement (cash from operations section) and Capital Expenditures (also from the cash flow statement, listed as "purchase of property, plant & equipment" or similar). The calculator shows FCF immediately. Optionally enter Market Capitalisation to see FCF Yield — a valuation metric comparable to earnings yield.
Use consistent units. All figures should be from the same period — typically the last twelve months (LTM) for a valuation context, or a single fiscal year for reporting.
Free Cash Flow formula
The standard FCF formula uses cash flow statement line items directly:
$$\text{FCF} = \text{Operating Cash Flow} - \text{Capital Expenditures}$$
An alternative derivation starts from the income statement and adjusts for non-cash items and working capital:
$$\text{FCF} = \text{Net Income} + \text{D\&A} - \Delta\text{Working Capital} - \text{CapEx}$$
Both formulas yield the same result if the inputs are consistent. The operating cash flow method is simpler and less prone to manipulation. The income statement method is useful when the cash flow statement is unavailable or when building a financial model.
Two related metrics:
$$\text{FCF Yield} = \frac{\text{FCF}}{\text{Market Cap}} \times 100$$
$$\text{FCF Margin} = \frac{\text{FCF}}{\text{Revenue}} \times 100$$
FCF vs. EBITDA vs. net income
Each profitability metric answers a different question about the business:
| Metric | What it measures | Includes CapEx | Includes D&A | Includes Working Capital |
|---|---|---|---|---|
| Net Income | Accounting profit (GAAP) | No | Yes (as expense) | No |
| EBITDA | Operating profit before D&A | No | Added back | No |
| Operating Cash Flow | Cash from core operations | No | Added back | Yes |
| Free Cash Flow | Cash after capital investment | Yes (subtracted) | Added back | Yes |
Warren Buffett has consistently argued that FCF is the most honest measure of business earnings because it accounts for the capital investment required to sustain the business. EBITDA can be manipulated by changing D&A accounting; FCF is harder to engineer because it tracks actual cash movement.
Worked examples
| Company Type | OCF | CapEx | FCF | FCF Margin (vs. Revenue) |
|---|---|---|---|---|
| SaaS company ($50M revenue) | $12M | $1M | $11M | 22% |
| Manufacturer ($200M revenue) | $30M | $22M | $8M | 4% |
| Telecom ($1B revenue) | $250M | $180M | $70M | 7% |
| High-growth startup ($30M revenue) | -$5M | $3M | -$8M | Negative |
| Retail chain ($500M revenue) | $40M | $25M | $15M | 3% |
FCF yield and benchmarks
FCF Yield = FCF / Market Cap × 100. It is the inverse of the Price-to-FCF multiple and measures how much free cash flow investors receive per dollar of market value — analogous to earnings yield for P/E ratios.
| FCF Yield | Interpretation | Price-to-FCF multiple |
|---|---|---|
| < 2% | Very expensive — typical of high-growth stocks | > 50x |
| 2% – 4% | Premium valuation | 25x – 50x |
| 4% – 6% | Fair value range for quality businesses | 17x – 25x |
| 6% – 10% | Attractively priced | 10x – 17x |
| > 10% | Deep value or distress signal | < 10x |
What negative FCF means
Negative FCF means CapEx exceeds operating cash flow. Context determines whether this is a warning sign or a healthy investment phase:
- Healthy negative FCF: A company in a defined expansion phase — building a factory, rolling out infrastructure, entering a new market — intentionally investing above its current operating cash flow to drive future returns. Amazon ran negative FCF for years while building its fulfilment network and AWS.
- Concerning negative FCF: A mature company consistently spending more on maintenance CapEx than it generates from operations, requiring repeated equity raises or debt financing to fund the gap. This destroys shareholder value over time.
- Structural negative FCF: Some capital-intensive industries (airlines, oil & gas, telecom) routinely run near-zero or negative FCF due to the continuous investment demands of their asset base. Evaluate relative to the industry, not in absolute terms.
Frequently asked questions
What is Free Cash Flow?
FCF is the cash generated by a business from its operations after paying for capital expenditures. It represents cash available for dividends, share buybacks, debt repayment, or acquisitions. FCF = Operating Cash Flow − CapEx.
Where do I find operating cash flow and CapEx?
Both are on the cash flow statement. Operating Cash Flow is the subtotal of the "Cash from Operating Activities" section. CapEx appears in the "Cash from Investing Activities" section — often labelled "purchase of property, plant and equipment" or "capital expenditures." CapEx is typically a negative number on the cash flow statement; enter the absolute value.
What is the difference between FCF and EBITDA?
EBITDA adds back D&A to operating profit — it does not deduct CapEx. FCF starts from operating cash flow (which includes working capital movements) and subtracts CapEx. For a capital-intensive manufacturer spending $50M on CapEx, EBITDA might be $80M while FCF is only $30M. EBITDA overstates cash generation for heavy CapEx businesses; FCF does not.
What is FCF yield and what is a good level?
FCF Yield = FCF / Market Cap × 100. It shows how much free cash flow an investor receives per dollar invested. A yield above 5% is generally considered attractive for a quality business. Compare against 10-year Treasury yields as the risk-free benchmark — FCF yield should exceed risk-free rates by a sufficient margin to compensate for equity risk.
Can FCF differ significantly from net income?
Yes — sometimes dramatically. A profitable company with poor working capital management (rising receivables, slow collections) can have low or negative FCF despite high net income. Conversely, a loss-making startup can have positive FCF if it collects cash upfront (subscriptions) and defers costs. Always check FCF alongside net income for a complete picture.