FCF Margin: The One Number That Cuts Through Every Earnings Story

The Problem With Earnings

Most investors look at earnings per share. Analysts project it, companies beat or miss it, stock prices move on it. But here's what earnings won't tell you: whether a company is actually generating cash.

Earnings include non-cash items. Depreciation. Stock-based compensation. Deferred revenue recognition. Accruals that may or may not turn into actual money. A company can show impressive earnings growth while burning through cash — and plenty do.

Free cash flow margin solves this. It's simple: take the cash a company generates after paying for everything it needs to run (capital expenditures included), divide by revenue, multiply by 100. The result is a percentage that tells you how much real cash the business produces for every dollar of sales.

Visa generates 53.9% FCF margin. That means for every dollar customers spend on Visa transactions, the company keeps 54 cents as free cash after all expenses and investments. MicroStrategy generates -4,777% FCF margin. Yes, negative four thousand percent. For every dollar of revenue, it burns through forty-eight dollars of cash.

One of those companies gets an A grade from Aureus. The other gets an F. The margin makes it obvious which is which.

Why Margin Matters More Than Absolute Cash Flow

You could look at raw free cash flow numbers — Company A generated $5 billion, Company B generated $500 million. But that comparison is meaningless without context. The $5 billion company might have $100 billion in revenue (5% margin). The $500 million company might have $1 billion in revenue (50% margin).

The second company is the better cash generator. It's more efficient. It needs less revenue to produce more cash. That efficiency compounds — higher margins mean more room for pricing pressure, more cushion during downturns, more cash available for buybacks or dividends without straining the business.

Look at the sector medians in our data. Technology sits at 24.2% median FCF margin. Consumer discretionary sits at 10.2%. Both sectors can have healthy companies, but tech's structural advantage is clear — software scales better than retail. Once you build the product, every incremental sale drops mostly to cash flow. Physical retail has to keep buying inventory, staffing stores, managing logistics.

Real estate hits 42.1% median because REITs collect rent (low capital intensity after initial property purchase) and distribute most of it. Utilities sit at -8.0% median because they're constantly building infrastructure. Crypto-related companies hit -195.4% median because most are burning venture capital to mine Bitcoin at a loss.

Those sector differences matter. A 15% FCF margin in healthcare (median: 15.5%) is solid. The same 15% in technology (median: 24.2%) suggests the company has a problem.

Reading the Extremes

The top of our rankings looks like a real estate showcase. Realty Income at 67.8%. VICI Properties at 61.7%. Prologis at 59.9%. These are REITs with long-term triple-net leases — tenants pay rent, property taxes, insurance, and maintenance. Realty Income collects checks and distributes them. Nearly 68% of every revenue dollar becomes free cash.

CME Group (Chicago Mercantile Exchange) sits at 58.7% — the fourth-highest margin in our entire dataset. Exchanges are toll booths. Every trade pays a fee. Incremental transactions cost almost nothing to process. The margin reflects it.

Now look at the bottom. The five worst FCF margins in our data are all crypto-related. MicroStrategy leads the disaster at -4,777%. That's not a typo. The company borrowed billions to buy Bitcoin. Revenue stays flat (it's actually a business intelligence software company). Free cash flow went deeply, catastrophically negative. The margin calculation reflects the carnage.

Riot Platforms: -404.2%. Cipher Mining: -258.7%. Bitfarms: -249.1%. MARA Holdings: -141.8%. All burning cash to mine cryptocurrency at scale. Some will survive if Bitcoin rallies. None currently generate positive free cash flow. The margins tell you that immediately.

What Changes the Margin

FCF margin moves when three things change: revenue grows or shrinks, operating expenses shift, or capital expenditures increase or decrease.

A software company releasing a new product might see revenue jump 30% while operating expenses rise only 10% and capex stays flat. Margin expands. A retailer opening new stores might see revenue grow 15% but capex spikes 40% to build locations. Margin contracts, possibly goes negative.

Our data shows 115 companies with improving trends and 71 with declining trends. Those trends often show up in the margin before they show up in the stock price. A company with a 25% FCF margin that drops to 18% over four quarters is telling you something changed — pricing pressure, rising costs, increased investment, or all three.

DXCM (Dexcom) showed +500% YoY FCF growth. That kind of jump means margin expanded dramatically. EQT, LMT, RTX, CE — all posted +500% YoY growth. Something fundamental improved in how these companies convert revenue to cash.

Conversely, DOW and WEC both posted -500% YoY FCF declines. Those aren't small dips. Those are margin collapses. Something broke.

How to Use This

When you're analyzing a company, find the FCF margin. Most financial sites show free cash flow and revenue separately — divide one by the other. Then ask three questions:

First: How does this compare to sector peers? A 12% margin in industrials (median: 12.8%) is fine. A 12% margin in technology (median: 24.2%) suggests the company isn't capturing value the way its competitors do.

Second: What's the trend? Pull up the last four quarters. Is margin expanding, contracting, or stable? Stable is good. Expanding is great. Contracting means something is getting worse.

Third: What's the absolute level? A 5% FCF margin isn't necessarily bad, but it's fragile. Revenue drops 10%, the margin might go negative. A 40% margin can absorb shocks.

FCF margin won't tell you everything. It won't tell you if the balance sheet is over-levered. It won't tell you if growth is slowing. But it will tell you whether the core business generates real cash — and that's the foundation everything else sits on.

Earnings can lie. Margin cuts through it.