How to Analyze
Cash Flow.
Profit is an opinion; cash is a fact. Cash flow analysis asks five questions in order: is profit turning into cash, is the cash growing, what does the business spend to earn it, who gets the cash, and what is it worth. Five numbers answer them: operating cash flow, free cash flow, free cash flow yield, capex intensity and the cash conversion cycle. This guide defines each, runs the method on a real company and points to the tool on this site that measures it.
Cash flow analysis checks whether a company's profit is real cash. Start with operating cash flow, subtract capital expenditures to get free cash flow, then compare it with profit, with its own history and with the stock price.
What Are The Five Steps Of
Cash Flow Analysis?
Work through them in this order. Each step has one question, one number to look at, one rule of thumb, and a tool on this site that does the measuring for every stock we track.
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Is profit turning into cash?
Look at: operating cash flow against net income
Compare operating cash flow with net income. Over several years the two should be close, and operating cash flow at or above net income means profit is arriving as cash. If profit keeps outrunning cash, it is piling up as receivables, inventory or accounting gains.
Rule of thumb The Earnings Quality screener calls this cash conversion: below 90% it puts a company on watch and below 70% it flags it.
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Is the cash growing?
Look at: free cash flow over five to ten years
Look at free cash flow over five to ten years, not one. A steady business shows positive free cash flow in most years and a rising trend, and a single spike can come from a one-off.
Rule of thumb The tracker's default view asks for positive free cash flow in every fiscal year on file, then ranks by growth.
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What does the business spend to earn it?
Look at: capex intensity
Subtract capital expenditures from operating cash flow and look at capex as a share of revenue. A business that keeps most of its operating cash is capital-light, and one that must reinvest heavily needs the extra cash just to stand still or grow.
Rule of thumb Under 5% of revenue is light, 5 to 15% moderate and over 15% heavy. Compare within a sector, never across sectors.
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Who gets the cash?
Look at: dividends and buybacks against free cash flow
Check where the free cash flow goes: dividends, share buybacks, debt repayment, acquisitions or the bank account. Cash paid out that is larger than the free cash flow that funds it has to come from somewhere else.
Rule of thumb Over several years, dividends plus buybacks should sit at or below free cash flow. Above 100% for long means the gap is being funded from the cash pile or from debt.
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What is it worth?
Look at: free cash flow yield and a cash-flow valuation
Divide free cash flow by the market value to get the free cash flow yield, then compare it with the alternatives and with a discounted-cash-flow estimate. A great business can still be a poor purchase at a high price.
Rule of thumb The Screen Builder's cash-rich preset starts at a 6% yield. A low yield is not wrong, but it means the price already assumes growth.
What Does The Five-Step Check
Look Like On Apple?
Apple's fiscal 2025 (the year to September 2025), from its 10-K. Figures in dollars, rounded. This is an illustration of the method, not a view on the stock.
| Step | What we measured | Apple, fiscal 2025 | How to read it |
|---|---|---|---|
| 1. Profit into cash | Operating cash flow ÷ net income | $111.5B ÷ $112.0B = 99.5% | Almost every dollar of profit arrived as cash, above the 90% watch line. |
| 2. Growing cash | Free cash flow, fiscal 2020 to 2025 | $73.4B to $98.8B, up 35%, positive in all six years | Steady and rising, with no negative year. |
| 3. What it spends | Capex ÷ revenue | $12.7B ÷ $416.2B = 3.1%; free cash flow margin 23.7% | Light: it keeps about 89 cents of each operating cash dollar. |
| 4. Who gets it | Dividends plus buybacks ÷ free cash flow | $15.4B + $90.7B = $106.1B, 107% of free cash flow | It paid out slightly more than it made, funded from existing cash and debt. |
| 5. What it is worth | Free cash flow ÷ market value | $98.8B ÷ today's market value | Price moves daily, so check the live yield on Apple's stock page. |
When does capex change the story?
Microsoft's fiscal 2026 shows it. Operating cash flow rose 34% to $182.9B, yet capex rose 80% to $115.9B (35% of revenue), so free cash flow slipped about 6%, from $71.6B to $67.0B. Profit and operating cash flow looked excellent; step 3 is what showed the cost. Whether that spending earns its return is the question the rest of the method cannot answer for you.
What Do The Five
Cash Flow Terms Mean?
Each definition opens with a one-sentence answer, then the formula, then what to watch. Every figure on the site comes from the company's own 10-K filings.
What is operating cash flow (OCF)?
Operating cash flow is the cash a company's core business produced in a year, before any spending on equipment or buildings.
Net income + non-cash charges ± changes in working capitalMore detail
It is the first subtotal on the cash flow statement in every 10-K. It strips out accounting items such as depreciation, which reduce profit without costing cash, and it moves with receivables, inventory and payables, so one year can be flattered or hurt by timing.
Earnings Quality compares it with profit, and the stock card's 10-year financials chart shows it for every year. See also the glossary entry.
What is free cash flow (FCF)?
Free cash flow is operating cash flow minus capital expenditures: the cash left after the company has paid to keep and expand its business.
Operating cash flow − capital expendituresMore detail
It is what is available for dividends, buybacks, debt repayment or the bank account. This site uses exactly that definition. It does not subtract stock-based pay, which still costs owners through dilution: Earnings Quality shows free cash flow after stock compensation.
The Free Cash Flow Screener ranks it over time. See also the glossary entry.
What is free cash flow yield?
Free cash flow yield is free cash flow divided by market capitalization: the cash a company generates for each dollar the market asks for the whole business.
Free cash flow ÷ market capitalization (or per share ÷ price)More detail
A higher yield means more cash for the price, and a low one means you are paying for growth that has not arrived yet. Banks, insurers, other financials, real estate and utilities are left out of the yield list, because their cash flow does not describe the business the same way.
The Screen Builder's cash-rich preset starts at a yield of 6%, together with a safe Altman Z-score and no earnings-quality flag. Read what is free cash flow yield for the long version.
What is capex intensity?
Capex intensity is capital expenditures divided by revenue: how many cents of each sales dollar go into equipment, buildings and software.
Capital expenditures ÷ revenueMore detail
On the screener, under 5% of revenue is called light, 5 to 15% moderate and over 15% heavy: a reading aid, not a rule. It can also be read against operating cash flow: how much of the cash the business makes it has to put straight back.
A light business keeps most of its operating cash; a heavy one needs it just to stay in place. See what is a capital-light business.
What is the cash conversion cycle?
The cash conversion cycle is days sales outstanding plus days inventory outstanding minus days payables outstanding: the number of days cash is tied up between paying suppliers and collecting from customers.
Days sales outstanding + days inventory outstanding − days payables outstandingMore detail
It adds the days customers take to pay and the days stock sits on the shelf, and subtracts the days the company itself takes to pay its suppliers. A shorter or negative cycle means less cash is tied up in the business.
This site does not rank stocks on the cycle yet: it needs receivables, inventory, payables and cost of sales, which are not in the filings data we hold. The closest thing we show is cash conversion (operating cash flow over net income), which is a different measure. Use the calculator below with numbers from a company's balance sheet and income statement.
| Number | Formula | Reading it | Where on this site |
|---|---|---|---|
| Operating cash flow | Cash from the core business | Close to or above net income over several years | Earnings Quality, stock cards |
| Free cash flow | Operating cash flow − capex | Positive most years, with a rising trend | Free Cash Flow Screener |
| FCF yield | Free cash flow ÷ market value | Higher is cheaper for the cash made | Free cash flow yield list |
| Capex intensity | Capex ÷ revenue | Under 5% light, over 15% heavy | Free Cash Flow Screener |
| Cash conversion cycle | DSO + DIO − DPO | Shorter, or negative, ties up less cash | The calculator below |
| Measure | What it counts | What it ignores | Best used for |
|---|---|---|---|
| Net income | Revenue less all expenses, including non-cash charges and accruals | When cash actually moved; capital spending | The accounting view of profit |
| Operating cash flow | Cash from the core business after working-capital swings | Capital spending on equipment and buildings | Checking that profit is real cash |
| Free cash flow | Operating cash flow after capital expenditures | Stock-based pay (an add-back), and one-off timing in working capital | Judging what owners can actually receive |
What Does A Healthy
Cash Flow Profile Look Like?
There is no universal pass mark, and sectors differ. These are the bars the tools on this site actually apply, so you can see where a reading would be flagged.
| Measure | The bar this site uses | Where it is applied |
|---|---|---|
| Cash conversion (operating cash flow ÷ net income) | Below 90% is a watch, below 70% a flag | Earnings Quality |
| Years of positive free cash flow | Every fiscal year on file | Free Cash Flow Screener, default view |
| Free cash flow margin | 15% or more of revenue | Free Cash Flow Screener, margin filter |
| Capex intensity | Under 5% of revenue light, over 15% heavy | Free Cash Flow Screener |
| Free cash flow yield | 6% or more for the cash-rich preset | Screen Builder |
| Payouts against free cash flow | Dividends plus buybacks at or below 100% over several years | Shareholder Yield, Sustainable Dividends |
| Cash conversion cycle | No universal bar: compare with the same industry and the company's own history | The calculator below |
Where does the typical stock sit right now?
Loading the latest medians from the filings data…
How Do The Three Financial
Statements Connect To Cash Flow?
Every 10-K has three statements, and cash flow analysis uses all of them. The cash flow statement is the one that reconciles the other two.
| Statement | The question it answers | What to take from it |
|---|---|---|
| Income statement | How much profit did the year make? | Revenue and net income, for conversion and margins |
| Balance sheet | What does the company own and owe at year end? | Receivables, inventory and payables, for the cash conversion cycle |
| Cash flow statement | Where did the cash come from, and where did it go? | Operating cash flow, capex, dividends, buybacks and debt |
Where do you find operating cash flow and capex in a 10-K?
- Open the 10-K and find the Consolidated Statements of Cash Flows, usually in Item 8.
- Take the subtotal for cash from operating activities. Apple calls it “Cash generated by operating activities”; Microsoft calls it “Net cash from operations”.
- In the investing section, take the line for purchases of property and equipment. Apple labels it “Payments for acquisition of property, plant and equipment”; Microsoft “Additions to property and equipment”.
- Subtract the second figure from the first. That is free cash flow. On a stock page here, click any figure to open the filing it came from.
What do investing and financing cash flow add?
Free cash flow uses only the operating section and the capex line from the investing section. The rest of investing (acquisitions, securities bought and sold) shows how the company deploys cash. The financing section shows where it goes to owners and lenders: dividends, buybacks and debt repaid or raised. That is step 4.
What is the difference between FCFF, FCFE and free cash flow per share?
FCFF (free cash flow to the firm) is cash available to all capital providers, before interest, and is what a discounted-cash-flow model uses. FCFE (to equity) is what is left for shareholders after interest and net borrowing. The free cash flow on this site, operating cash flow minus capex, sits closest to FCFE before any new borrowing, because US interest payments are already inside operating cash flow.
Free cash flow per share divides it by diluted shares. Watch the share count: steady buybacks can lift the per-share figure even while total free cash flow is flat.
What Are The Cash Flow
Red Flags And Mistakes?
Six warning signs in a company's cash flow, then four mistakes readers make. A flag is a reason to open the filing, not a verdict.
What are the warning signs in the filing?
Receivables growing faster than sales
Customers are paying later, or sales are being booked before cash arrives. Profit rises while operating cash flow lags.
Inventory piling up
Stock that grows faster than sales ties up cash and often precedes a write-down.
Stretching suppliers
Paying suppliers later lifts operating cash flow for a year, then reverses. Check whether payables jumped.
One-off swings in working capital
A single huge year of operating cash flow can be timing, not trend. Look at the multi-year average.
Capex cut to flatter free cash flow
Spending less on equipment raises free cash flow today and can hurt growth later. Compare capex with depreciation.
Free cash flow that depends on stock pay
Stock-based pay is added back in operating cash flow but dilutes owners. Check free cash flow after it on Earnings Quality.
What mistakes do readers make?
Reading one year
A single year of free cash flow can be a one-off: a customer paid early, a supplier was paid late, or a big project was delayed. Look at five to ten years.
Treating negative as bad
A company investing heavily to grow can show negative free cash flow for years. What matters is what the spending buys, whether operating cash flow is positive and rising, and how the gap is funded.
Ignoring stock pay
Stock-based compensation is added back in operating cash flow, but it costs owners through dilution. It is also why the stock-comp haircut exists.
Comparing across industries
A software company and a shipping line have very different capital needs. Compare capex intensity and margins within a sector, not across them.
How Do You Calculate Free Cash Flow
And The Cash Conversion Cycle?
Both calculators work in any one currency unit and run in your browser; nothing is sent anywhere. Pick an example profile or type your own numbers.
Free cash flow, margin, capex intensity and yield
Operating cash flow and capex are the two you need. Add revenue for the margin and capex intensity, and market value for the yield. All in millions of dollars.
Cash conversion cycle
Revenue and cost of sales are for the year; receivables, inventory and payables are year-end balances. Use the same unit for all five.
Frequently asked questions about cash flow analysis
What is cash flow analysis?
Cash flow analysis reads a company's cash flow statement to see whether its profit is arriving as cash, whether that cash is growing, what it costs to earn, where it goes and what it is worth. It starts with operating cash flow and free cash flow.
What is the difference between operating cash flow and free cash flow?
Operating cash flow is the cash the core business produced. Free cash flow is operating cash flow minus capital expenditures, so it is what is left after the company has paid to keep and expand its equipment and buildings.
What is a good free cash flow yield?
A higher yield means more cash for the price, but there is no universal bar. Compare it with bond yields and with the same sector. On this site, the Screen Builder's cash-rich preset starts at a yield of 6%, together with a safe Altman Z-score and no earnings-quality flag.
What is capex intensity?
Capex intensity is capital expenditures as a share of revenue. On the Free Cash Flow Screener, under 5% of revenue is called light, 5 to 15% moderate and over 15% heavy, as a reading aid.
What is the cash conversion cycle, and is a negative one good?
The cash conversion cycle is days sales outstanding plus days inventory outstanding minus days payables outstanding. A shorter or negative cycle means the company ties up less cash in its operations, and compare it only within the same industry.
Is negative free cash flow always bad?
No. A company investing heavily to grow can have negative free cash flow for years. Check whether operating cash flow is positive and rising, what the spending buys and how the gap is funded, before treating it as a warning.
How do you find free cash flow in a 10-K?
Open the Consolidated Statements of Cash Flows. Take the subtotal for cash from operating activities, then subtract the line for purchases of property and equipment (capital expenditures) from the investing section.
What is the difference between free cash flow and net income?
Net income is accounting profit after non-cash charges and accruals; free cash flow is the cash that arrived after capital spending. Over several years they should move together, and a persistent gap is the reason to check earnings quality.
Can free cash flow be manipulated?
It is harder to flatter than profit, but not impossible: a company can pay suppliers later, collect from customers sooner or cut capex to lift it for a year. That is why you read several years and compare it with profit and with working capital.
Is higher free cash flow always better?
Not by itself. Free cash flow can rise because a company cut investment it needed, so check capex intensity and growth alongside it, and judge it against the price with the free cash flow yield.
Read next
About cash flow analysis
Cash flow analysis turns a company's cash flow statement into five questions: is profit turning into cash, is the cash growing, what does it spend, who gets it and what is it worth. This guide defines operating cash flow, free cash flow, free cash flow yield, capex intensity and the cash conversion cycle, runs the method on a real company, and links the screeners that measure them: Earnings Quality, the Free Cash Flow Screener, Shareholder Yield and the free cash flow yield list. Terms are defined in the glossary, and every figure comes from the company's own 10-K filings; see Editorial Standards for how the data is sourced.
Educational content only, not investment advice. Strong cash flow does not make a stock cheap, and weak cash flow does not make it a poor investment. The next step: run the Free Cash Flow Screener and see which stocks have turned sales into cash, year after year.