FCF margin

Profitability

The share of revenue converted into free cash flow after all operating costs and capital spending.

Formula

FCF margin = free cash flow ÷ revenue, where FCF = operating cash flow − capex

Why it matters

FCF margin answers the question net margin cannot: of every dollar of sales, how much cash can the owners actually take out without starving the business? It nets out the accrual judgments in earnings and charges the company for the capital equipment it needs. Companies with high FCF margins are self-funding — they can grow, pay down debt, and return cash without raising money from anyone.

What good looks like

Above 15% is excellent. 5–15% is healthy for most industries. Near zero or negative means the business consumes cash even while it may report accounting profits. FCF margin close to or above net margin generally indicates high-quality, cash-backed earnings.

Caveats

A heavy investment year depresses FCF margin even when the spending is building future value — distinguish maintenance capex from growth capex when the gap between OCF and FCF is large. Working-capital swings add noise year to year. Stock-based compensation is added back in operating cash flow, so FCF margin flatters heavy SBC issuers; check SBC/FCF alongside it.