What is FCF Margin 5Y?
The average free cash flow margin over the past 5 years, smoothing out year-to-year variations.
Think of it like this
Like looking at a restaurant's average profit margin over 5 years instead of just last year - shows consistent cash generation ability.
Formula
5Y FCF Margin = Average of (FCF รท Revenue) over 5 years- FCF: Free Cash Flow each year
- Revenue: Total sales each year
- Average: Mean of 5 annual calculations
Why it matters
- Shows sustainable cash conversion
- Smooths out capex cycles
- Better than single year for comparison
- Indicates business quality over time
What's a good value?
> 15%
Excellent
Consistently strong cash generation
10-15%
Good
Solid cash conversion
5-10%
Moderate
Average performance
< 5%
Low
Capital intensive or struggling
Real-world example
Microsoft maintains 25%+ FCF margins consistently, showing exceptional business quality.
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