How this calculator works
Free cash flow starts with the cash generated by operations and subtracts the capital expenditure needed to keep and grow the asset base. It is the cash available for dividends, buybacks, debt repayment or acquisitions. Unlike earnings, it is not affected by depreciation schedules, but it still includes judgement: maintenance capital spending can be defined narrowly or broadly, and changes in working capital can swing the figure from year to year. Free cash flow per share divides the total by shares outstanding, the yield compares it with market capitalization, and the margin compares it with revenue.
Formula
Free cash flow = operating cash flow - capital expenditure. Free cash flow per share = free cash flow / shares outstanding. Market capitalization = shares outstanding × stock price. Free cash flow yield = free cash flow / market capitalization. Free cash flow margin = free cash flow / revenue.
Worked example
Operating cash flow of $300,000 less $100,000 of capital expenditure gives $200,000 of free cash flow. With one million shares at $20 each, market capitalization is $20,000,000, free cash flow per share is $0.20, the yield is 1 per cent and the margin on $2,000,000 of revenue is 10 per cent.
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Frequently asked questions
Why is free cash flow different from net income?
Net income includes non-cash charges such as depreciation and excludes cash spent on equipment and changes in working capital. Free cash flow reverses that: it starts from operating cash and deducts the capital spending that net income only spreads over time.
Is a negative free cash flow always bad?
No. A fast-growing company can have negative free cash flow because it is investing heavily. The question is whether the investment earns a good return. Persistent negative free cash flow in a mature business is a warning sign.
What is a good free cash flow yield?
A yield of 5 to 10 per cent is often considered attractive, but it depends on growth, risk and interest rates. A high yield can also signal that the market expects the cash flow to decline, so check the trend and the quality of the cash generation.