Free Cash Flow Calculator

Free cash flow formulas, with Excel and Google Sheets versions

Each result above comes from one of these formulas. The examples use the calculator's default numbers, which describe an illustrative B2B SaaS company with $20,000,000 of revenue that bills most contracts annually upfront. It is the same company as in the EBITDA calculator, so the two pages agree.

B2 is net cash from operating activities, B3 purchases of property and equipment, B4 capitalized software development, B5 revenue, B6 revenue for the same period last year and B7 stock-based compensation. C2 is net income, C3 depreciation and amortization, C4 the cash effect of working capital changes and C5 other non-cash items. D2 is EBITDA, D3 cash taxes, D4 interest received and D5 interest paid. E2 is operating income (EBIT) and E3 the tax rate as a decimal. Format margin cells as percentages.

How to calculate free cash flow, step by step

1. Pick the period. A full year or the trailing twelve months. One quarter can mislead, because SaaS collections are seasonal.
2. Find net cash from operating activities. It is the subtotal of the first section of the cash flow statement. If you only have a P&L and two balance sheets, build it: net income, plus depreciation, amortization and stock comp, plus or minus the change in working capital.
3. Find capital spending in the investing section. Purchases of property and equipment, plus capitalized software development costs if the company capitalizes engineering time.
4. Subtract. Operating cash flow minus both capital lines is free cash flow.
5. Divide by revenue. That is FCF margin. Add year-over-year revenue growth for the Rule of 40 score.
6. Show it after stock comp too. Stock-based compensation is added back in operating cash flow. Subtract it once to see what FCF looks like if the company paid those people in cash.

Free cash flow, FCFF and FCFE

"Free cash flow" without a qualifier usually means operating cash flow minus capex. Valuation work uses two stricter versions. Say which one you mean.

FCFF comes out lower than FCF in the default example, $1,640,000 against $1,800,000, because the company earns more interest on its cash than it pays on its debt. FCFF removes that net interest income after tax: $200,000 x (1 - 20%) = $160,000. Buffett's version comes from his 1986 letter to Berkshire Hathaway shareholders, which subtracts "the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume."

Free cash flow in SaaS: capitalized software, deferred revenue and stock comp

Three lines make a software company's free cash flow behave differently from a manufacturer's. Most FCF guides skip all three.

• Capitalized software is capex. When a SaaS company capitalizes engineering time on new products, that cost never touches R&D on the P&L. It shows up in investing activities instead, below operating cash flow. Leave it out of capex and FCF looks higher than at a peer that expenses the same work. Opex vs capex covers which software costs count as capex and which do not.
• Deferred revenue pulls cash forward. A customer who pays a $120,000 annual contract upfront adds $120,000 of cash on day one and $10,000 of revenue a month. As long as bookings grow, the increase in deferred revenue keeps operating cash flow ahead of net income. The working capital calculator measures that effect line by line.
• Stock comp is added back. It is a real cost to shareholders and uses no cash, so operating cash flow adds it back. In a company that pays a large part of compensation in equity, FCF before stock comp and FCF after it can be far apart. Report both.

The same mechanics run through every month of a SaaS model. ORM's guide to the three statement model shows how deferred revenue, capitalized commissions and stock comp move from the P&L to the cash flow statement, with a full-year free cash flow line.

A public SaaS example: HubSpot's free cash flow in 2025

HubSpot's fiscal 2025 Form 10-K shows all three effects at once. The company says its subscriptions "are billed in advance on various schedules," and that it capitalizes certain software development costs once an application reaches the development stage, amortizing them over two to five years (HubSpot, Form 10-K for 2025).

On our arithmetic from those lines, the choices change the answer a lot:

HubSpot's own figure, $594.9 million, is defined in its Q4 2025 earnings release as operating cash flow "less purchases of property and equipment and capitalization of software development costs, plus payment of restructuring charges." Capitalized software was 71% of HubSpot's capital spending in 2025. Leave it out and the Rule of 40 score crosses 40. Take stock comp out and it falls to about 21. Net income was $45.9 million; free cash flow was 12.6 times that.

FCF margin and the Rule of 40

FCF margin is free cash flow divided by revenue. On its own it punishes fast growth, because a company investing ahead of revenue runs a thin or negative margin. The Rule of 40 fixes that by adding the growth rate: revenue growth plus FCF margin should reach 40 or more.

The 26% is the 2024 median growth rate in Benchmarkit's 2025 SaaS benchmarks. For a mature company, Ramp calls a 10% to 15% free cash flow margin a common reference point for a healthy business, and notes that high-growth companies may run lower or negative FCF on purpose. The default company, growing 25% with a 9.0% FCF margin, scores 34.0 and is 6 points short. The EBITDA calculator scores the same company 30.0 on EBITDA margin, so the margin you choose decides whether it is close or far. Pick one, label it, and keep it.

Free cash flow conversion

FCF conversion is free cash flow divided by EBITDA. It asks how much of reported operating profit turned into cash. Corporate Finance Institute calls "a healthy FCF conversion rate" typically about 80%. In SaaS it can run well above 100%: the default company converts 180%, because stock comp and deferred revenue add cash that EBITDA does not count. A conversion rate that high is a reason to check deferred revenue growth, not a reason to celebrate. If bookings slow, the cash from new annual prepayments slows with them, and conversion falls even if EBITDA holds.

Free cash flow in a DCF

A discounted cash flow valuation forecasts FCFF for five to ten years, adds a terminal value, and discounts both at the weighted average cost of capital. For a SaaS company, every line of that forecast starts with revenue, and revenue starts with ARR and bookings. Two choices move the result more than the discount rate does: whether stock comp is treated as a cost, and whether capitalized software is in capex. Use the same answer in every year of the forecast and in the comparable companies.

What Pete Furseth sees behind a SaaS cash flow number

• Quarters are not equal. Pete sees the fourth quarter as typically the largest across ORM's customers, followed by the second, third and first, and the third month of each quarter as always the largest. Annual invoices follow bookings, so quarterly free cash flow swings with them. Compare a quarter with the same quarter last year, or use trailing twelve months.
• Payment terms are a cash decision made by sales. In his guide to billings vs cash collections, Pete notes that a rep three days from quarter end "will trade net 90 for a signature." The booking looks the same. The cash, and the free cash flow, arrive a quarter later.
• Pulled-forward deals cost twice. A deal pulled into this quarter usually closes at a discount, and it shrinks next quarter's starting pipeline. This year's FCF gets a lift that next year pays for.
• One definition, every slide. "If you show one number on one slide, that number better show up on the next, or there should be a clear explanation for why it changed." The HubSpot table shows why: four honest definitions, four different numbers.

Common free cash flow mistakes

• Leaving capitalized software out of capex. It flatters FCF by the amount of engineering time the company capitalizes.
• Adding stock comp back twice. If you start from adjusted EBITDA, stock comp is already back in.
• Getting the working capital sign wrong. An increase in receivables uses cash. An increase in deferred revenue frees it.
• Calling operating cash flow "sales minus operating expenses." That skips taxes, interest and working capital, and it subtracts depreciation, which is not cash.
• Reading one quarter. Annual billing makes quarterly FCF lumpy. Use a full year.
• Counting a funding round. Equity raised and loans drawn are financing cash flow. They never belong in free cash flow. If FCF is negative, the burn rate calculator turns it into months of runway.

FCF says whether the business makes cash. To see whether it makes a profit, and how much revenue it needs to stop losing money, use the net profit margin calculator and the break-even calculator; the split between fixed and variable costs sits under both. This calculator is for planning and analysis. It is not accounting, tax or legal advice; your auditor decides what is capitalized and how each cash flow is classified.

ORM's take on free cash flow and the bookings forecast

In a SaaS company, most of free cash flow starts as a booking. The booking sets the invoice, the terms set the collection date, and deferred revenue sets how far cash runs ahead of profit. A cash plan built on a bookings forecast that is wrong will be wrong by about the same amount, a quarter later.

That is what ORM forecasts. We build bookings and ARR forecasts from your own CRM data, with a low case, an on-target case and an upper bound, and with the week-by-week seasonality of your quarter built in. ORM targets 95% accuracy on the forecasts it builds. The cash flow forecast template turns those bookings into monthly cash by billing term.

Common questions

What is free cash flow?

Free cash flow is the cash a business generates from operations after paying for the equipment and capitalized software it needs to keep running and growing. It is operating cash flow minus capital expenditures. It is the cash that could repay debt, fund an acquisition or stay in the bank, and it is the number investors use when they value a company on cash instead of earnings.

How do you calculate free cash flow from EBITDA?

Start with EBITDA, add back stock-based compensation if EBITDA is not already adjusted, subtract cash taxes and net interest paid, add the cash effect of working capital changes, then subtract capex and capitalized software. With $1,000,000 of EBITDA, $1,400,000 of stock comp, $120,000 of tax, $200,000 of net interest income, $400,000 from working capital and $1,080,000 of capital spending, free cash flow is $1,800,000.

What does FCFF stand for?

FCFF stands for free cash flow to the firm, also called unlevered free cash flow. It is the cash available to every capital provider, lenders and shareholders, before interest. The usual formula is NOPAT, which is EBIT x (1 - tax rate), plus depreciation and amortization, minus capex and the increase in working capital. FCFF is the cash flow a DCF discounts at the weighted average cost of capital.

What does Warren Buffett say about free cash flow?

Buffett uses the term owner earnings. In his 1986 letter to Berkshire Hathaway shareholders he defined it as reported earnings plus depreciation, amortization and certain other non-cash charges, less the average annual capital spending the business needs to maintain its long-term competitive position and its unit volume. That is close to free cash flow, with one difference: he subtracts only the capex needed to stand still, not growth capex.

What is a good free cash flow margin?

Ramp calls a 10% to 15% free cash flow margin a common reference point for a healthy mature business. A growing SaaS company should read FCF margin together with growth, through the Rule of 40: 25% growth needs a 15% margin to reach 40. HubSpot, growing 19.2% in 2025, had an 18.4% FCF margin on our arithmetic from its 10-K.

Why is free cash flow higher than net income in a SaaS company?

Two reasons. Stock-based compensation is an expense on the P&L but uses no cash, so it is added back. And customers who pay annual contracts upfront raise deferred revenue, which brings cash in before the revenue is earned. HubSpot reported $45.9 million of net income in 2025 and $760.7 million of operating cash flow, with $528.2 million of stock comp and a $183.9 million rise in deferred revenue.