What is FCF Growth?
FCF Growth measures how much a company's free cash flow increased year-over-year. Strong FCF growth indicates the business is generating more real cash, not just accounting profits.
Think of it like this
Your lemonade stand made $100 cash last summer after buying supplies. This year you made $150 cash. That's 50% FCF growth - you're getting better at turning sales into real money!
Formula
FCF Growth = (Current Year FCF - Prior Year FCF) / Prior Year FCF × 100%- Current Year FCF: This year's free cash flow
- Prior Year FCF: Last year's free cash flow
Why it matters
- Shows if company generating more real cash
- More reliable than earnings growth
- Indicates business momentum and competitive strength
- Consistent growth attracts investors
What's a good value?
< 0%
Declining
Cash generation weakening
0-15%
Moderate Growth
Steady, sustainable pace
15-30%
Strong Growth
Impressive expansion
> 30%
Exceptional
Rapid expansion, verify sustainability
Real-world example
Microsoft FCF growth: 15-20% annually - consistent and sustainable. Netflix during growth phase: 50%+ - rapid expansion. Mature retailers: 0-5% - slow growth markets. Tesla turnaround: -100% to positive - business transformation.
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