A free cash flow calculator produces the number that survives every accounting choice: the cash a business generates from operating, after it has paid for the assets it needs to keep operating. Profit can be shaped by depreciation policy, revenue recognition timing and provisions. Cash arrives or it does not. That is why lenders, buyers and valuation models all end up here.
Arb Digital publishes this in the free tool library at arbsbuy.com for owners and finance teams who need the figure quickly and correctly. It is a business measure, and it is separate from the live personal cash flow calculator, which tracks household income against household spending. This page works from the corporate cash flow statement and returns the levered and unlevered variants that valuation work actually requires.
What This Free Cash Flow Calculator Does
Enter cash flow from operations and capital expenditure and the calculator returns free cash flow, the simple and most widely quoted definition. Add interest, a tax rate and net new borrowing and it also returns the two variants that matter when debt is in the picture: unlevered free cash flow, which measures the cash available to all providers of capital, and free cash flow to equity, which measures what is left for shareholders after debt service and new borrowing.
Add revenue and net income and two further diagnostics appear. FCF margin shows how much of each unit of sales converts into free cash. Cash conversion compares free cash flow with net income, which is the fastest way to see whether reported profit is turning into money.
The three bars break the operating cash flow into the share consumed by capital expenditure and the share left over, and then show FCF as a proportion of revenue. Together they answer the question owners actually ask: of everything the business earned this year, how much is genuinely free to deploy?
How to Use It
- Take operating cash flow from the cash flow statement, not from profit. It is the subtotal after non-cash add-backs and working capital movements have been applied.
- Take capital expenditure from the investing section. It usually appears as purchases of property, plant and equipment, plus capitalised development or software costs. Enter it as a positive number.
- Enter interest and your tax rate for the unlevered figure. Do not hardcode a rate from memory — it varies by country, entity and year, which is why it is an input here.
- Enter net new borrowing — new debt raised less repayments — for free cash flow to equity. A negative value is normal for a business paying down debt.
- Add revenue and net income for the margin and cash conversion diagnostics, then compare all four outputs before drawing a conclusion.
The Formula / How It's Calculated
The base definition is FCF = cash flow from operations − capital expenditure. Unlevered free cash flow, which strips out the effect of financing, is operating cash flow + interest × (1 − tax rate) − capital expenditure. Free cash flow to equity adds back the cash effect of debt movements: operating cash flow − capital expenditure + net new borrowing.
Run the defaults. Operating cash flow of 620,000 less capital expenditure of 245,000 gives free cash flow of 375,000. Capital expenditure therefore consumed 245,000 ÷ 620,000 = 39.5 percent of the operating cash, leaving 60.5 percent free.
For the unlevered figure, interest of 55,000 is added back net of tax relief. At a 21 percent rate the after-tax cost of that interest is 55,000 × (1 − 0.21) = 43,450, so unlevered free cash flow is 620,000 + 43,450 − 245,000 = 418,450. Free cash flow to equity adds net new borrowing of 40,000 to the base figure, giving 415,000. On revenue of 2,400,000 the FCF margin is 375,000 ÷ 2,400,000 = 15.63 percent, and against net income of 165,000 the cash conversion ratio is 375,000 ÷ 165,000 = 227 percent.
Levered, Unlevered, and Which One a Valuation Needs
The three variants are not competing definitions of the same thing. They answer different questions, and using the wrong one inside a valuation produces an error that no amount of care elsewhere will fix.
Unlevered free cash flow is the cash the business produces before any financing decision. It belongs to everyone with a claim on the company — lenders and shareholders together — which is why it is the figure discounted at the weighted average cost of capital to produce an enterprise value. That is the pairing the DCF calculator and the WACC calculator are built around.
Free cash flow to equity is what remains after lenders have been paid and any new borrowing has been drawn. It belongs to shareholders alone, so it is discounted at the cost of equity and produces an equity value directly. The consistency rule is absolute: unlevered cash flows with WACC, levered cash flows with cost of equity. Mixing them either double-counts the benefit of debt or omits it entirely, and the resulting valuation can be wrong by a wide margin. The base FCF figure sits between the two and is best treated as an operational health measure rather than a valuation input, which is how most published commentary uses it.
Why Capital Expenditure Is the Hardest Input
Operating cash flow is a reported subtotal, so it is hard to get wrong. Capital expenditure is a single reported line covering two economically different things, and separating them changes what the answer means.
Maintenance capital expenditure is what the business must spend to keep producing at its current level: replacing worn machines, refreshing a vehicle fleet, renewing IT. It is a genuine recurring cost of staying in business. Growth capital expenditure buys capacity that does not yet exist — a new site, an additional production line, an expansion. It is discretionary in a way maintenance spending is not.
The consequence is that a company investing heavily in growth can report very low or negative free cash flow while being in excellent health, and a company reporting strong free cash flow can be quietly underinvesting and storing up a replacement cliff. Neither is visible from the single capex line. A rough separation many analysts use is to treat depreciation as a proxy for maintenance capex, on the argument that depreciation approximates the consumption of existing assets; the depreciation calculator gives you that figure directly. Capex persistently below depreciation over several years is a signal worth investigating.
Cash Conversion, and When Profit Is Not Money
The ratio of free cash flow to net income is one of the most informative numbers a small business can track, and it is the reason this calculator asks for net income at all.
A ratio near or above one hundred percent means reported profit is arriving as cash. The default figures give 227 percent, which is high because non-cash charges — depreciation and amortisation of 160,000 in the matching EBITDA example — are added back inside operating cash flow while the corresponding spending is lower in this particular year. A ratio persistently below one hundred percent means profit is being absorbed somewhere before it becomes cash, and there are only three places it can go.
Receivables are the first: sales recognised but not collected. Inventory is the second: cash converted into stock sitting on a shelf. Payables are the third, working in reverse — paying suppliers faster reduces cash without touching profit. All three sit in the working capital movements inside operating cash flow, which is why the working capital calculator is the natural next step when conversion looks weak. A growing business almost always shows weaker conversion than a flat one, because growth consumes working capital before it produces cash, and that is a financing problem rather than a profitability one.
Reading Free Cash Flow Honestly
Two habits keep the figure useful. The first is to look at several periods rather than one. Free cash flow is lumpy by construction: a year containing a major capital project shows a poor figure and a year without one shows a flattering figure, even though nothing about the operating business changed. A three-year average smooths the capital cycle and is far more representative than any single year.
The second is to remember what free cash flow is not. It is not a standardised accounting measure. Companies define it differently — some deduct all investing outflows, some deduct only maintenance capex, some subtract lease payments and some do not. Because of that elasticity, regulators treat it as a non-GAAP measure and require public companies to explain and reconcile it, as set out in the Securities and Exchange Commission's consolidated Compliance and Disclosure Interpretations. If you are comparing two businesses, confirm that both computed the figure the same way, and if you are unfamiliar with where operating cash flow comes from, the SEC's investor glossary entry for the cash flow statement sets out the three sections it is built from. For the earnings-side view of the same business, the EBITDA calculator and the net profit margin calculator give the comparison points.
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Web Growth Services Talk to Arb DigitalCommon Mistakes to Avoid
- Starting from net income instead of operating cash flow — the add-backs and working capital movements are exactly what makes the figure a cash measure.
- Discounting levered cash flows at WACC — unlevered flows pair with WACC, levered flows with cost of equity, and mixing them misprices the benefit of debt.
- Treating all capex as unavoidable — growth capital expenditure is discretionary, and lumping it with maintenance makes an expanding business look like a failing one.
- Judging one year in isolation — capital projects make the figure lumpy, so a multi-year average is far more representative.
- Comparing figures computed differently — free cash flow is not standardised, so two published numbers may not measure the same thing.
Related Free Tools From Arb Digital
Pair this with the EBITDA calculator for the earnings view, the DCF calculator to discount these flows into a value, the WACC calculator for the discount rate itself, the working capital calculator when cash conversion is weak, the intrinsic value calculator for the per-share view, and the burn rate calculator when free cash flow is negative. The full free online tools hub lists everything else.
Frequently Asked Questions
Cash flow from operations minus capital expenditure. Operating cash flow of 620,000 less capital expenditure of 245,000 gives free cash flow of 375,000, meaning that much cash remained after paying for the assets the business needs.
Unlevered free cash flow is the cash generated before any financing effect, so it belongs to lenders and shareholders together. Levered free cash flow, or free cash flow to equity, is what remains after debt service and new borrowing, so it belongs to shareholders alone.
Because interest is deductible in most tax systems, so the true economic cost of the interest is the payment less the tax relief it generates. Adding back the gross amount would overstate the cash available to all capital providers.
No. A company investing heavily in new capacity can report negative free cash flow while being in good health, because growth capital expenditure is discretionary spending on future capacity rather than a cost of staying in business.
It depends on the sector and on where the business is in its capital cycle. The more useful comparison is against your own prior years and against similar businesses, and a multi-year average is more representative than any single year.
It compares free cash flow with net income. A ratio persistently below one hundred percent means profit is being absorbed before it becomes cash — usually by receivables, inventory or faster payment of suppliers.
No. It is a non-GAAP measure and companies define it differently, with some deducting all investing outflows and others only maintenance capital expenditure. Always confirm the definition before comparing two published figures.
This calculator performs arithmetic on figures you supply and is provided for general information only. It is not accounting, investment or valuation advice, and free cash flow is not a standardised measure — confirm any figure used in a transaction or filing with a qualified professional.
