Free cash flow margin

Free cash flow margin divides FCF by revenue, capturing the proportion of each revenue dollar that becomes cash available for shareholders, debt repayment, or M&A after maintenance and growth investment. FCF margin is harder to fudge than accounting-margin metrics because it explicitly subtracts both working-capital changes and capital expenditures. A business with a 20% operating margin and a 5% FCF margin has a meaningful gap — likely working-capital intensity or heavy capex — that an operating-margin lens misses entirely. We watch FCF-margin trends as the cleanest signal of cash-conversion quality. A persistent EBITDA-to-FCF gap is a quality red flag that triggers our accruals diagnostic; conversely, FCF margin rising faster than operating margin is the unmistakable signature of working-capital release or capex normalization, both of which are mid-cycle tailwinds that often precede multiple expansion.