Cash Flow
What Is Free Cash Flow Margin?
Free cash flow margin is operating cash flow minus capex, divided by revenue. It tells you what percentage of every sales dollar actually lands in your bank account. Public DTC companies at the top quartile hit 12 to 18%; the median sits at 4 to 8%. FCF beats EBITDA as a survival metric because it captures working capital and capex, not just paper profit.
Free Cash Flow Margin is operating cash flow minus capital expenditures, divided by revenue. It's the bottom-most profitability metric, the bank-account truth that can't be manufactured the way EBITDA can.
How FCF margin is calculated
FCF Margin (%) = (Operating Cash Flow − CapEx) ÷ Revenue × 100
Operating Cash Flow comes from the cash flow statement (top of OCF section). CapEx is investments in PP&E, software, warehouse buildouts.
Example
A DTC brand: $50M revenue, $7.6M EBITDA, but $3M tied up in inventory growth during the year and $1.4M capex for warehouse expansion. Operating cash flow = $7.6M − $3M = $4.6M. FCF = $4.6M − $1.4M = $3.2M. FCF margin = $3.2M ÷ $50M = 6.4%. EBITDA margin reads 15.2%, but FCF tells the bank what's actually happening.
What's a good FCF margin?
- Public DTC top quartile: 1218%
- Public DTC median: 48%
- Public DTC bottom quartile: negative
- Private mature DTC target: 614%
For benchmark data see FCF margin public DTC 2026.
The most common mistake
Reporting EBITDA as a proxy for cash generation in operating reviews. EBITDA ignores working capital and capex. A brand with 18% EBITDA and 4% FCF is bleeding cash on paper-positive numbers. The CFO's job is to make both visible.
Frequently Asked Questions
why is FCF margin more conservative than EBITDA margin?
FCF includes working capital changes and capex; EBITDA ignores both. The gap is the realness check.
can FCF margin be higher than EBITDA margin?
Rarely. Usually means inventory shrinking faster than capex consuming cash, not sustainable.
why don't early-stage VCs care about FCF margin?
They're funding growth deliberately. FCF trajectory + terminal-scale FCF matter more than current FCF.
Related Terms
- What is EBITDA margin?
- What is cash runway?
- What is cash conversion cycle?
- FCF margin public DTC 2026
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