Free Cash Flow Calculator
Calculate Free Cash Flow (FCF) from operating cash flow minus capital expenditures.
Find FCF per share, FCF yield, and understand why Warren Buffett calls it 'owner earnings'.
Free Cash Flow Formula
Free Cash Flow (FCF) is the cash a business generates after paying for the capital investments needed to maintain and grow the business. It is the money truly “free” to be returned to investors.
Method 1 — Direct (most common):
FCF = Operating Cash Flow − Capital Expenditures (CapEx)
Method 2 — From Net Income:
FCF = Net Income + Depreciation & Amortization − Changes in Working Capital − CapEx
Both methods produce the same result when the numbers are consistent.
Why FCF Matters More Than Earnings
Warren Buffett famously calls FCF “owner earnings” — the cash that actually belongs to shareholders. Reported earnings (EPS) can be manipulated through accounting choices: changing depreciation methods, capitalizing expenses, adjusting reserves. Cash is harder to fake.
A company with high reported earnings but negative FCF is a red flag — it may be earning paper profits while burning through cash. A company with modest earnings but strong FCF is often undervalued.
FCF Per Share
FCF Per Share = FCF ÷ Shares Outstanding
This is directly comparable to Earnings Per Share (EPS) but much harder to manipulate.
FCF Yield
FCF Yield = FCF ÷ Market Capitalization × 100
FCF Yield tells you how much free cash flow you receive for every dollar invested in the company’s stock.
FCF Yield Interpretation
| FCF Yield | Interpretation |
|---|---|
| < 2% | Expensive — little return for the price paid |
| 2–4% | Fairly valued in most market conditions |
| 5–8% | Potentially undervalued — attractive entry |
| > 8% | Very cheap — or the market sees a risk you don’t |
| Negative | Company spending more than it generates — burning cash |
FCF vs Earnings Comparison
| Metric | Based On | Manipulation Risk |
|---|---|---|
| Net Income (EPS) | Accrual accounting | High |
| EBITDA | Earnings + add-backs | Medium |
| Operating Cash Flow | Actual cash | Low |
| Free Cash Flow | Cash minus investment | Very Low |
Worked Example
A technology company reports:
- Operating Cash Flow: $450 million
- Capital Expenditures: $85 million
- Shares Outstanding: 200 million
- Market Cap: $8 billion
- FCF = $450M − $85M = $365 million
- FCF Per Share = $365M ÷ 200M = $1.83/share
- FCF Yield = $365M ÷ $8,000M × 100 = 4.56% (fairly valued)
Pro Tips
- Compare FCF growth year-over-year — accelerating FCF is a strong bullish signal.
- Companies in heavy growth phases (Amazon in early years) often have low or negative FCF intentionally while investing for future returns.
- FCF margin = FCF ÷ Revenue. Best-in-class software companies achieve 25–40% FCF margins.
- Always verify CapEx is “maintenance CapEx” plus “growth CapEx” — management sometimes underspends on maintenance to inflate FCF temporarily.