FCF Margin
Tier 2 · Engine Room · 1.0× weightHow much of every revenue dollar actually turns into free cash?
Free Cash Flow Margin measures operating cash flow minus capital expenditures, divided by revenue. It is the purest indicator of a company's ability to generate cash from its core business after maintaining and expanding its asset base. Unlike net income, FCF cannot be engineered through depreciation schedules or working capital tricks. It is the ultimate reality check on reported profitability.
Positive and growing FCF margin is the clearest sign a business model is working. Negative FCF isn't automatically bad for early-stage companies, but it limits upside on the conviction score.
Tech/SaaS targets 25%+. FinTech 20%+. Healthcare 15%+. Consumer/Retail 10%+. Industrial/Energy 8%+. Negative FCF triggers a kill-switch that caps the Valuation score at 4/10 regardless of how cheap the stock looks.
FCF margin exceeds sector target — cash machine behaviour
Positive FCF margin but below sector benchmark
Negative FCF margin — burning cash despite reported profits