What is a good free cash flow amount? (2024)

What is a good free cash flow amount?

To have a healthy free cash flow, you want to have enough free cash on hand to be able to pay all of your company's bills and costs for a month, and the more you surpass that number, the better. Some investors and analysts believe that a good free cash flow for a SaaS company is anywhere from about 20% to 25%.

What is the ideal price to free cash flow?

A good price to cash flow ratio is anything below 10. The lower the number, the better the value of the stock. This is because a lower ratio indicates that the company is undervalued with respect to its cash flows.

What is a good free cash flow yield number?

Free Cash Flow Yield determines if the stock price provides good value for the amount of free cash flow being generated. In general, especially when researching dividend stocks, yields above 4% would be acceptable for further research. Yields above 7% would be considered of high rank.

What is a good cash flow range?

Operating Cash Flow Ratio Analysis

Generally, a ratio over 1 is considered to be desirable, while a ratio lower than that indicates strained financial standing of the firm.

What is a good FCF margin?

Well, while there's no one-size-fits-all ratio that your business should be aiming for – mainly because there are significant variations between industries – a higher cash flow margin is usually better. A cash flow margin ratio of 60% is very good, indicating that Company A has a high level of profitability.

What is a bad free cash flow?

What Does Negative Free Cash Flow Mean? When there is no cash left over after meeting operating, capital, and adjusting for non-cash expenses, a company has negative free cash flow. This means that the company has no excess cash on hand in a given period, which could be a sign of poor financial health.

Do you want a high or low free cash flow?

A higher free cash flow yield is ideal because it means a company has enough cash flow to satisfy all of its obligations. If the free cash flow yield is low, it means investors aren't receiving a very good return on the money they're investing in the company.

What is a high free cash flow ratio?

2. What is a good free cash flow to sales ratio? A ratio of less than 1% indicates that the company is not generating enough cash flow from its sales to cover its expenses. A ratio greater than 1% means that the company has more cash available than it spends on capital expenditures.

Which stock has the most free cash flow?

What is a healthy cash flow statement?

Generally, a company is considered to be in “good shape” if it consistently brings in more cash than it spends. Cash flow reflects a company's financial health, and its ability to pay its bills and other liabilities. In most cases, the more cash available for business operations, the better.

How do you know if cash flow is good?

If a company's cash flow is continually positive, it's a strong indication that the company is in a good position to avoid excessive borrowing, expand its business, pay dividends, and weather hard times. Free cash flow is an important evaluative indicator for investors.

Is high FCF good?

A high FCF yield indicates that the company is generating more cash than the market values it for, suggesting that the company is undervalued. Flexibility and Growth Potential: Companies with a strong FCF have the flexibility to invest in growth opportunities without depending on external financing.

Why is high FCF good?

An abundant amount of FCF also shows that a company is generating more cash than it needs. Companies can also use their FCF to expand business operations or pursue other investments. So, when measuring a company's growth potential, FCF could serve as a better metric than earnings.

What is the rule of 40 for FCF margin?

The Rule of 40 is a simple way to assess a SaaS company's performance. This rule states that a SaaS company is healthy if the sum of its revenue growth and profitability margin (EBITDA, EBIT, or free cash flow) is higher than 40%.

What is free cash flow for dummies?

Free cash flow, or FCF, is the money that is left over after a business pays its operating expenses (OpEx), such as mortgage or rent, payroll, property taxes and inventory costs — and capital expenditures (CapEx). Examples of CapEx are long-term investments such as equipment, technology and real estate.

Is too much free cash flow bad?

Having too much free cash flow, however, can indicate that a business is not properly leveraging its assets, as excess funds could be put toward expansion. On the other hand, the owner of a business with negative free cash flow should evaluate why FCF is negative.

What is free cash flow vs net income?

Free cash flow (FCF) is a measure of a business's profitability, but is not equivalent to overall net income. Net income is the amount of profit that a company has reported over a certain time period.

Is free cash flow just profit?

Unlike earnings or net income, free cash flow is a measure of profitability that excludes the non-cash expenses of the income statement and includes spending on equipment and assets as well as changes in working capital from the balance sheet.

What is Apple's free cash flow?

106.9B USD. Based on the financial report for Dec 30, 2023, Apple Inc's Free Cash Flow amounts to 106.9B USD.

How much free cash flow does Amazon have?

Amazon annual free cash flow for 2023 was $36.813B, a 418.2% decline from 2022. Amazon annual free cash flow for 2022 was $-11.569B, a 27.57% increase from 2021. Amazon annual free cash flow for 2021 was $-9.069B, a 129.24% decline from 2020.

Why cash flow is more important than profit?

Cash flow statements, on the other hand, provide a more straightforward report of the cash available. In other words, a company can appear profitable “on paper” but not have enough actual cash to replenish its inventory or pay its immediate operating expenses such as lease and utilities.

How do you evaluate free cash flow?

The simplest way to calculate free cash flow is by finding capital expenditures on the cash flow statement and subtracting it from the operating cash flow found in the cash flow statement.

Is EBITDA free cash flow?

Is EBITDA free cash flow? EBITDA (earnings before interest, taxes, depreciation and amortisation) and free cash flow (FCF) are very similar, but not the same. Rather, they represent different ways of showing a company's earnings, which gives investors and company managers different perspectives.

Is 40 a good gross profit margin?

Obviously, yes 40% profit margin in a business is a very big deal as it depends upon the industry in which you are working but the average net profit margin is considered to be at 10% and 20% margin is considered a good margin of profit, 5% is low.

What is rule of 40 unlevered free cash flow?

What's the rule of 40? Growth rate + profit should be greater than or equal to 40%. There are a number of options for deciding what to use to represent growth (e.g., ARR) and profit (e.g., EBITDA, operating margin). For public companies it usually translates to revenue growth rate and free cash flow margin.