What is FCF Margin?
FCF Margin shows what percentage of revenue becomes free cash flow. It reveals how efficiently a company converts sales into actual cash after all expenses and investments.
Think of it like this
You sell $1000 worth of lemonade. After paying for lemons, cups, and a new better stand, you have $150 cash left. That's a 15% FCF margin - for every dollar sold, 15 cents becomes real cash!
Formula
FCF Margin = (Free Cash Flow / Revenue) × 100%- Free Cash Flow: Operating cash flow minus capital expenditures
- Revenue: Total sales
Why it matters
- Shows how much revenue converts to cash
- Higher margins = better business quality
- Indicates pricing power and efficiency
- Key metric for comparing competitors
What's a good value?
< 5%
Low
Capital intensive or competitive pressure
5-10%
Moderate
Decent cash conversion
10-20%
Good
Strong cash generation
> 20%
Excellent
Outstanding efficiency, likely tech/software
Real-world example
Software companies (Adobe, Microsoft): 25-35% - very high margins. Apple: 20-25% - premium pricing and efficiency. Retailers (Walmart, Target): 2-5% - thin margins, high volume. Airlines: 5-10% - capital intensive.
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