function calculateFCFGrowth() {
var initialFcfInput = document.getElementById('initialFcf');
var endingFcfInput = document.getElementById('endingFcf');
var numYearsInput = document.getElementById('numYears');
var resultBox = document.getElementById('resultBox');
var errorMsg = document.getElementById('errorMsg');
var startVal = parseFloat(initialFcfInput.value);
var endVal = parseFloat(endingFcfInput.value);
var years = parseFloat(numYearsInput.value);
// Reset display
errorMsg.style.display = 'none';
resultBox.style.display = 'none';
// Validation
if (isNaN(startVal) || isNaN(endVal) || isNaN(years)) {
errorMsg.innerText = "Please enter valid numbers in all fields.";
errorMsg.style.display = 'block';
return;
}
if (years <= 0) {
errorMsg.innerText = "Number of periods must be greater than 0.";
errorMsg.style.display = 'block';
return;
}
if (startVal === 0) {
errorMsg.innerText = "Initial Free Cash Flow cannot be zero for growth rate calculation.";
errorMsg.style.display = 'block';
return;
}
// Check for negative to positive transition or negative base which makes CAGR formula invalid
if (startVal 0) {
errorMsg.innerText = "Standard CAGR formula cannot calculate growth from a negative to a positive value directly. Please use absolute change analysis.";
errorMsg.style.display = 'block';
return;
}
if (startVal < 0 && endVal < 0) {
// While mathematically calculable, it's often misleading in financial contexts.
// We will process it but results can be counter-intuitive (e.g. -100 to -50 is 50% improvement but formula might differ).
// For strict CAGR: (End/Start)^(1/n) – 1 requires End/Start to be positive.
// If both are negative, ratio is positive, math works.
}
// Logic: Compound Annual Growth Rate (CAGR)
// Formula: (Ending Value / Beginning Value) ^ (1 / n) – 1
var ratio = endVal / startVal;
// Handle negative root issues
if (ratio < 0) {
errorMsg.innerText = "Cannot calculate CAGR when the trend crosses zero or results in a negative ratio base.";
errorMsg.style.display = 'block';
return;
}
var cagr = (Math.pow(ratio, 1 / years) – 1) * 100;
// Total Growth Percentage
var totalGrowth = ((endVal – startVal) / Math.abs(startVal)) * 100;
// Absolute Change
var absChange = endVal – startVal;
// Display Results
document.getElementById('cagrResult').innerText = cagr.toFixed(2) + "%";
document.getElementById('totalGrowthResult').innerText = totalGrowth.toFixed(2) + "%";
// Format currency for absolute change
var formattedChange = absChange.toLocaleString('en-US', { style: 'currency', currency: 'USD' });
document.getElementById('absChangeResult').innerText = formattedChange;
resultBox.style.display = 'block';
}
Understanding Free Cash Flow (FCF) Growth Rate
The Free Cash Flow (FCF) Growth Rate is a critical financial metric used by investors and analysts to evaluate the performance and potential value of a company. Unlike net income, which can be manipulated through accounting practices, Free Cash Flow represents the actual cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.
Calculating the growth rate of FCF allows investors to project future cash flows, which is a fundamental step in performing Discounted Cash Flow (DCF) analyses to estimate a company's intrinsic value.
How to Calculate FCF Growth Rate
The most common method for calculating the smoothed growth rate over a period of time is using the Compound Annual Growth Rate (CAGR) formula. This dampens the effect of volatility in year-over-year changes and provides a single annual growth figure.
The Formula:
CAGR = (Ending FCF / Beginning FCF) ^ (1 / n) – 1
Where:
Ending FCF: The free cash flow generated in the most recent period.
Beginning FCF: The free cash flow generated in the initial period.
n: The number of years or periods between the two values.
Example Calculation
Consider a technology company with the following financial data:
Raise result to the power of (1/5): 1.85 ^ 0.2 = 1.1309
Subtract 1: 1.1309 – 1 = 0.1309
Convert to percentage: 13.09%
This means the company grew its Free Cash Flow at an average annual rate of 13.09% over the 5-year period.
Why FCF Growth Matters for Valuation
Investors prize FCF growth because it indicates a company has increasing resources to pay dividends, buy back stock, reduce debt, or reinvest in the business without relying on external financing. High and stable FCF growth is often a hallmark of a competitive advantage (or "moat").
However, users should be cautious. FCF is often volatile due to "lumpy" capital expenditures (CapEx). One year of heavy investment can depress FCF temporarily, skewing growth rates. It is often best to view FCF trends over longer periods (5-10 years) rather than relying on short-term year-over-year changes.