What this calculator does
Free cash flow is what is left after a business has paid for the capital spending needed to keep operating. It is the money genuinely available for dividends, debt repayment or reinvestment, which is why many investors trust it more than reported profit.
Capital intensity is what it exposes. The same $250,000 of operating cash flow produces $210,000 of free cash flow when capex is light, but only $90,000 when capex takes 64 per cent of it, cutting the yield from 4.20 per cent to 1.80 per cent.
The formula
Subtract capital expenditure from operating cash flow. Dividing by shares outstanding gives free cash flow per share, and dividing by market capitalisation gives the yield.
| Term | Meaning |
|---|---|
| Operating cash flow | Cash generated by the business, from the cash flow statement. |
| Capital expenditure | Spending on property, plant, equipment and other long-lived assets. |
| FCF yield | Free cash flow as a percentage of market capitalisation, a cash-based valuation measure. |
The inputs explained
| Field | What to enter |
|---|---|
| Operating cash flow ($) | Operating cash flow from the cash flow statement. |
| Capital expenditure ($) | Capital expenditure over the same period. |
| Shares outstanding | Shares outstanding. |
| Market capitalisation ($) | Market capitalisation, for the yield calculation. |
When to use it
Checking whether profit is real
A company reporting strong profit with weak free cash flow is worth a closer look.
Assessing dividend safety
Dividends paid out of free cash flow are sustainable; dividends exceeding it are not, for long.
Valuing on a cash basis
FCF yield compares directly against bond yields in a way earnings-based ratios do not.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How much does capital spending consume?
The same operating cash flow at three levels of capex.
| Capital expenditure | Free cash flow | FCF yield |
|---|---|---|
| $40k | $210,000.00 | 4.20% |
| $80k | $170,000.00 | 3.40% |
| $160k | $90,000.00 | 1.80% |
Questions
Why is free cash flow preferred to profit?
Because profit involves accounting judgements about timing, provisions and depreciation, while cash either arrived or it did not. Free cash flow is harder to present favourably, which is exactly why investors look at it.
Should all capex be subtracted?
Strictly, only maintenance capex is needed to sustain the business, and growth capex is discretionary. Companies rarely split the two, so the total is usually used, which makes growing companies look worse than they are.
Can free cash flow be negative?
Yes, and for a rapidly expanding company it often is. That is not automatically a problem, provided the investment earns a return and the funding is in place. Persistent negative free cash flow without either is.
How does FCF yield compare to dividend yield?
FCF yield shows what the company could pay; dividend yield shows what it does pay. A large gap between them means either a cushion or unpaid potential, depending on your point of view.
For an earnings measure before capital spending, see the EBITDA calculator. For what is paid out of that cash, see the dividend yield and payout calculator.