Free Cash Flow Calculator: What Your Business Keeps

Is a $350,000 free cash flow high or low?

On the defaults — $500,000 of operating cash flow and $150,000 of capital expenditures — the free cash flow is $350,000.00. A $350,000 free cash flow is neither high nor low on its own: it is the cash the business keeps after paying for its assets, and the industry decides what that cash means — a $350,000 free cash flow in a consultancy and a $350,000 free cash flow in a trucking fleet are different stories, because one runs on thin capex by design and the other cannot avoid it. A high free cash flow relative to sales means an efficient cash machine — software companies are famous for it, because their capex is small. A low or negative free cash flow is normal for a business in a heavy building phase — a new factory or a fleet renewal depresses one year’s figure, which is why free cash flow is read year over year, not from a single year.

Three things about the model are worth stating plainly.

First, the free cash flow is $500,000 − $150,000 = $350,000.00. Second, the operating cash flow needed for a $400,000 free cash flow is $400,000 + $150,000 = $550,000.00. And third, the capital expenditures allowed for a $400,000 free cash flow is $500,000 − $400,000 = $100,000.00; all listed in Accuracy & limitations.

The worked example, line by line

Setup: $500,000 operating cash flow, $150,000 capital expenditures, target free cash flow $400,000.

Line 1 — the free cash flow. The free cash flow is $500,000 − $150,000 = $350,000.00.

Line 2 — the operating cash flow needed. The operating cash flow needed for a $400,000 free cash flow is $400,000 + $150,000 = $550,000.00.

Line 3 — the capital expenditures allowed. The capital expenditures allowed for a $400,000 free cash flow is $500,000 − $400,000 = $100,000.00.

Line 4 — the check. $550,000.00 − $150,000.00 = $400,000.00, the target free cash flow; and $500,000.00 − $100,000.00 = $400,000.00, the target free cash flow.

Every branch, checked

Operating cash flow $600,000: Operating cash flow $600,000.00; capital expenditures $150,000.00; free cash flow $450,000.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target $200,000.00 — With operating cash flow of $600,000 the free cash flow rises to $450,000.00.

Capital expenditures $250,000: Operating cash flow $500,000.00; capital expenditures $250,000.00; free cash flow $250,000.00; operating cash flow needed for the $400,000.00 target $650,000.00; capital expenditures allowed for the $400,000.00 target $100,000.00 — With capital expenditures of $250,000 the free cash flow falls to $250,000.00.

Capital expenditures $50,000: Operating cash flow $500,000.00; capital expenditures $50,000.00; free cash flow $450,000.00; operating cash flow needed for the $400,000.00 target $450,000.00; capital expenditures allowed for the $400,000.00 target $100,000.00 — With capital expenditures of $50,000 the free cash flow rises to $450,000.00.

Operating cash flow $300,000: Operating cash flow $300,000.00; capital expenditures $150,000.00; free cash flow $150,000.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target −$100,000.00 — With operating cash flow of $300,000 the free cash flow falls to $150,000.00.

Operating cash flow $150,000: Operating cash flow $150,000.00; capital expenditures $150,000.00; free cash flow $0.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target −$250,000.00 — With operating cash flow of $150,000 the free cash flow is $0.00 — the business keeps nothing after paying for its assets, it breaks even on cash.

Operating cash flow $100,000: Operating cash flow $100,000.00; capital expenditures $150,000.00; free cash flow −$50,000.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target −$300,000.00 — With operating cash flow of $100,000 the free cash flow is −$50,000.00 — a negative free cash flow means the business spends more on its assets than its day-to-day work brings in, so it burns cash and must borrow, raise money, or draw on reserves to keep going — and a negative free cash flow is not a bargain signal, it is a warning sign.

Free-cash-flow bars — operating cash flow $700,000, capital expenditures $100,000, operating cash flow $400,000: operating cash flow $700,000: free cash flow $550,000.00; capital expenditures $100,000: free cash flow $400,000.00; operating cash flow $400,000: free cash flow $250,000.00 — An operating cash flow of $700,000 gives a free cash flow of $550,000.00; capital expenditures of $100,000 give a free cash flow of $400,000.00; an operating cash flow of $400,000 gives a free cash flow of $250,000.00.

The reverses, worked backwards

Smallest operating cash flow for the free cash flow to reach $400,000: At the displayed $550,000 the figures are Operating cash flow $550,000.00; capital expenditures $150,000.00; free cash flow $400,000.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target $150,000.00. At the displayed $550,000 the free cash flow is $400,000.00 (exactly $400,000.00). At $549,999 the free cash flow is $399,999.00 — $1 short of the $400,000 target — so $550,000 is the smallest whole-dollar operating cash flow for the free cash flow to reach $400,000.

Largest capital expenditures for the free cash flow to STAY at or above $400,000: At the displayed $100,000 the figures are Operating cash flow $500,000.00; capital expenditures $100,000.00; free cash flow $400,000.00; operating cash flow needed for the $400,000.00 target $500,000.00; capital expenditures allowed for the $400,000.00 target $100,000.00. At the displayed $100,000 the free cash flow is $400,000.00 (exactly $400,000.00). At $100,001 the free cash flow is $399,999.00 — $1 short of the $400,000 target — so $100,000 is the largest whole-dollar capital expenditures for the free cash flow to stay at or above $400,000.

Smallest operating cash flow for the free cash flow to reach $500,000: At the displayed $650,000 the figures are Operating cash flow $650,000.00; capital expenditures $150,000.00; free cash flow $500,000.00; operating cash flow needed for the $500,000.00 target $650,000.00; capital expenditures allowed for the $500,000.00 target $150,000.00. At the displayed $650,000 the free cash flow is $500,000.00 (exactly $500,000.00). At $649,999 the free cash flow is $499,999.00 — $1 short of the $500,000 target — so $650,000 is the smallest whole-dollar operating cash flow for the free cash flow to reach $500,000.

Largest capital expenditures for the free cash flow to STAY at or above $300,000: At the displayed $200,000 the figures are Operating cash flow $500,000.00; capital expenditures $200,000.00; free cash flow $300,000.00; operating cash flow needed for the $300,000.00 target $500,000.00; capital expenditures allowed for the $300,000.00 target $200,000.00. At the displayed $200,000 the free cash flow is $300,000.00 (exactly $300,000.00). At $200,001 the free cash flow is $299,999.00 — $1 short of the $300,000 target — so $200,000 is the largest whole-dollar capital expenditures for the free cash flow to stay at or above $300,000.

Smallest operating cash flow for the free cash flow to reach $350,000: At the displayed $500,000 the figures are Operating cash flow $500,000.00; capital expenditures $150,000.00; free cash flow $350,000.00; operating cash flow needed for the $350,000.00 target $500,000.00; capital expenditures allowed for the $350,000.00 target $150,000.00. At the displayed $500,000 the free cash flow is $350,000.00 (exactly $350,000.00). At $499,999 the free cash flow is $349,999.00 — $1 short of the $350,000 target — so $500,000 is the smallest whole-dollar operating cash flow for the free cash flow to reach $350,000.

Largest capital expenditures for the free cash flow to STAY at or above $250,000: At the displayed $250,000 the figures are Operating cash flow $500,000.00; capital expenditures $250,000.00; free cash flow $250,000.00; operating cash flow needed for the $250,000.00 target $500,000.00; capital expenditures allowed for the $250,000.00 target $250,000.00. At the displayed $250,000 the free cash flow is $250,000.00 (exactly $250,000.00). At $250,001 the free cash flow is $249,999.00 — $1 short of the $250,000 target — so $250,000 is the largest whole-dollar capital expenditures for the free cash flow to stay at or above $250,000.

A warning about the neighbours: every neighbour above sits one dollar from the star — $1 of operating cash flow or $1 of capital expenditures — and every neighbour is exactly $1 short of the target. The free cash flow is linear in whole dollars, so the reverses have exact closed forms: the operating cash flow needed is the target plus the capital expenditures, and the capital expenditures allowed is the operating cash flow minus the target.

What the defaults assume

The defaults are $500,000 of operating cash flow, $150,000 of capital expenditures and a target free cash flow of $400,000 — Operating cash flow $500,000.00; capital expenditures $150,000.00; free cash flow $350,000.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target $100,000.00. With Operating cash flow $600,000, Operating cash flow $600,000.00; capital expenditures $150,000.00; free cash flow $450,000.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target $200,000.00. With Capital expenditures $250,000, Operating cash flow $500,000.00; capital expenditures $250,000.00; free cash flow $250,000.00; operating cash flow needed for the $400,000.00 target $650,000.00; capital expenditures allowed for the $400,000.00 target $100,000.00. With Capital expenditures $50,000, Operating cash flow $500,000.00; capital expenditures $50,000.00; free cash flow $450,000.00; operating cash flow needed for the $400,000.00 target $450,000.00; capital expenditures allowed for the $400,000.00 target $100,000.00. With Operating cash flow $300,000, Operating cash flow $300,000.00; capital expenditures $150,000.00; free cash flow $150,000.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target −$100,000.00. With Operating cash flow $150,000, Operating cash flow $150,000.00; capital expenditures $150,000.00; free cash flow $0.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target −$250,000.00. With Operating cash flow $100,000, Operating cash flow $100,000.00; capital expenditures $150,000.00; free cash flow −$50,000.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target −$300,000.00 (negative free cash flow, shown with a note, never hidden). With Free-cash-flow bars, operating cash flow $700,000: free cash flow $550,000.00; capital expenditures $100,000: free cash flow $400,000.00; operating cash flow $400,000: free cash flow $250,000.00. With Operating cash flow $150,000, capital expenditures $150,000, Operating cash flow $150,000.00; capital expenditures $150,000.00; free cash flow $0.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target −$250,000.00. With Operating cash flow $100,000, Operating cash flow $100,000.00; capital expenditures $150,000.00; free cash flow −$50,000.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target −$300,000.00 (negative free cash flow, shown with a note, never hidden). With Operating cash flow $550,001, Operating cash flow $550,001.00; capital expenditures $150,000.00; free cash flow $400,001.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target $150,001.00. With Capital expenditures $100,001, Operating cash flow $500,000.00; capital expenditures $100,001.00; free cash flow $399,999.00; operating cash flow needed for the $400,000.00 target $500,001.00; capital expenditures allowed for the $400,000.00 target $100,000.00. With Operating cash flow $500,000, Operating cash flow $500,000.00; capital expenditures $150,000.00; free cash flow $350,000.00; operating cash flow needed for the $400,000.00 target $550,000.00; capital expenditures allowed for the $400,000.00 target $100,000.00 (exactly $350,000.00). With Capital expenditures $0, Operating cash flow $500,000.00; capital expenditures $0.00; free cash flow $500,000.00; operating cash flow needed for the $400,000.00 target $400,000.00; capital expenditures allowed for the $400,000.00 target $100,000.00. With Free-cash-flow bars, operating cash flow $700,000: free cash flow $550,000.00; capital expenditures $100,000: free cash flow $400,000.00; operating cash flow $400,000: free cash flow $250,000.00.

A note on the rounding: every figure here is a whole dollar, so there is no rounding to hide behind — $549,999 of operating cash flow gives $399,999.00 of free cash flow, exactly $1 short of the $400,000 target, and $100,001 of capital expenditures gives $399,999.00 of free cash flow, exactly $1 short of the $400,000 target.

Output · formula · meaning

Who uses this

• The investor checking a company before buying: they learn $500,000 of operating cash flow with $150,000 of capital expenditures is a free cash flow of $350,000.00 — and they check the $550,000 reverse to see the operating cash flow a $400,000 free cash flow needs.
• The owner planning next year’s spending: they learn $100,000 of capital expenditures is the most the business can spend and still keep $400,000 of free cash flow — and they check the $200,000 reverse to see the capital expenditures a $300,000 free cash flow allows.
• The analyst comparing two companies in one industry: they learn a $350,000 free cash flow in a consultancy and a $350,000 free cash flow in a trucking fleet are different stories — and they check the $650,000 reverse to see the operating cash flow a $500,000 free cash flow needs.
• The student learning profitability measures: they learn the free cash flow is operating cash flow minus capital expenditures — and they check the $500,000 reverse to see the operating cash flow a $350,000 free cash flow needs.

Accuracy & limitations

The math is first-principles: the free cash flow is operating cash flow minus capital expenditures; the operating cash flow needed for the target is the target free cash flow plus capital expenditures; the capital expenditures allowed for the target is operating cash flow minus the target free cash flow — all in whole dollars. A negative free cash flow means the business spends more on its assets than its day-to-day work brings in — at $100,000 of operating cash flow the free cash flow is −$50,000.00 — a negative free cash flow means the business spends more on its assets than its day-to-day work brings in — it burns cash and must borrow, raise money, or draw on reserves to keep going — and a negative free cash flow is not a bargain signal, it is a warning sign — so the free cash flow is negative and the calculator shows the negative figure with a note, never hides it and never shows “—” for it. What the model cannot do is judge the business: free cash flow is not profit — profit counts non-cash items like depreciation and ignores when the capex cash actually leaves, so a profitable business can still run out of cash; free cash flow also says nothing about debt, interest, tax, or the quality of the operating cash flow. Free cash flow differs from operating cash flow: operating cash flow ignores the cost of maintaining the assets, so it flatters an asset-heavy business. Free cash flow is the starting point for a discounted cash flow valuation: the value of a business is the present value of its future free cash flow. Free cash flow margin is free cash flow divided by revenue — the share of each sales dollar the business keeps after its assets are paid for. Use it to see the cash the business keeps — then read the rest of the accounts.

Frequently asked questions