Free Cash Flow (FCF) Growth Rate Calculator
Measure the annual percentage change in a company's available cash.
Year-Over-Year (YoY) Growth
Multi-Year Growth (CAGR)
How to Calculate Free Cash Flow Growth Rate
Free Cash Flow (FCF) growth rate is a vital financial metric that tells investors and analysts how quickly a company's "true" cash generation is expanding over time. Unlike net income, FCF represents the cash actually available for debt repayment, dividends, or reinvestment after accounting for capital expenditures.
The Formulas
Depending on the timeframe you are looking at, there are two primary ways to calculate growth:
1. Year-Over-Year (YoY) Growth Rate
Use this when comparing one year (or quarter) to the previous one.
YoY Growth Rate = [(Current FCF – Previous FCF) / Previous FCF] × 100
2. Compound Annual Growth Rate (CAGR)
Use this to find the smoothed average annual growth rate over a multi-year period.
CAGR = [(Ending FCF / Beginning FCF)^(1 / Number of Years) – 1] × 100
Why FCF Growth Matters
- Sustainability: Consistently positive FCF growth suggests a business is becoming more efficient at generating cash.
- Valuation: Growth rates are core inputs for Discounted Cash Flow (DCF) models used to determine a stock's intrinsic value.
- Dividend Safety: For income investors, growing FCF is the primary engine behind future dividend increases.
Practical Example
Imagine "TechCorp" had the following FCF performance:
| Year | Free Cash Flow |
|---|---|
| 2020 (Year 0) | $500,000 |
| 2023 (Year 3) | $864,000 |
Calculating CAGR:
- Divide Ending FCF by Starting FCF: 864,000 / 500,000 = 1.728
- Raise to the power of (1/3 years): 1.728 ^ (1/3) = 1.20
- Subtract 1: 1.20 – 1 = 0.20
- Multiply by 100: 20% CAGR
Important Considerations
While high growth is usually positive, it is important to check if the growth is coming from organic operations or if it is being artificially boosted by slashing essential capital expenditures. If a company stops maintaining its equipment to save cash today, it may see a temporary spike in FCF followed by a long-term decline in productivity.