Also called Free cash flow margin

FCF margin

How many cents of spendable cash each dollar of sales leaves behind.

Updated 2026-09-03

How it is calculated

FCF margin = free cash flow ÷ revenue

Free cash flow margin is what proportion of every sales dollar survives as cash for owners. It is the single cleanest measure of business quality available from public statements.

FCF margin = free cash flow ÷ revenue

A software company might convert 30 cents on the dollar. A supermarket converts two or three.

It is a quality measure rather than a size measure, and comparing it across industries mostly measures the industry. What it is genuinely useful for is comparing a company to its own history: a margin that has been falling for three years while revenue grows is a business buying its growth, and it is exactly the pattern that makes a constant-margin projection too optimistic.

It is also the target the margin-convergence model aims at when valuing a company that does not yet generate cash. See target fcf margin, and note that Angie refuses to converge a company toward a margin more than double the best it has ever posted.

See also

  • Free cash flow — The cash left for investors after keeping the business running. This is the number a DCF actually values, taken from the most recent fiscal year.
  • Revenue — Total sales over the trailing twelve months, before any cost is subtracted.
  • Target FCF margin — For a company not yet generating cash, the steady-state margin it is assumed to reach. The most fragile assumption in the model, because nothing in the history supports it.

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Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.

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