Term · Cash Flow & Working Capital
Free Cash Flow Margin
In briefThe free cash flow margin relates a clearly defined free cash flow to revenue. It shows what share of cash per euro of revenue remains freely available and, given a consistent definition, facilitates time-series and peer comparisons.
Definition
The free cash flow margin relates a clearly defined free cash flow to revenue. It shows how much freely available cash flow arises from one euro of revenue.
How it is calculated
Formula. Free cash flow margin = free cash flow ÷ revenue × 100.
Why it matters for small caps
It facilitates time-series and peer comparisons, provided the FCF definition is consistent.
Common misreadings
- Differing FCF definitions, fluctuating working capital, and omitted lease or acquisition payments can distort the comparison.
In the process
Frequently asked
What is the free cash flow margin?
It indicates what share of revenue remains as freely available cash flow. The basis is a clearly defined free cash flow.
What is the free cash flow margin used for?
It makes cash generation comparable across periods and between companies. The prerequisite is that the underlying FCF definition stays the same.
What can distort the free cash flow margin?
Differing FCF definitions and fluctuating working capital impair the comparison. Omitted lease or acquisition payments can also flatter the picture.
Related terms
Sources
Primary
IFRS Foundation – IAS 7 Statement of Cash Flows
https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows.html/
https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows.html/
Methodology
ESMA – Guidelines on Alternative Performance Measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.