How to Calculate Free Cash Flow: SaaS FCF Formula Guide

Why Free Cash Flow Matters More Than Earnings

Every investor learns about earnings per share (EPS). Fewer understand the metric that actually determines shareholder returns: free cash flow.

Here's the reality most investors miss:

• Snowflake lost $1.35 billion in net income (TTM) but generated $114 million in positive FCF
• Zoom generates 41.7% FCF margin—higher than Adobe's celebrated 35.5%
• Intuit's quarterly FCF swings 7x between tax season and off-season

Net income can be manipulated through accounting choices. Depreciation schedules, revenue recognition timing, and accruals all affect reported earnings. Cash flow cannot be faked. Money either comes in or it doesn't.

This guide teaches you to calculate FCF using real 2025 SEC filing data, then reveals the analytical insights that separate sophisticated investors from the crowd.

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The FCF Formula: Step-by-Step

Basic FCF Formula

Free Cash Flow = Operating Cash Flow - Capital Expenditures

FCF Margin Formula

FCF Margin = Free Cash Flow ÷ Revenue

This tells you what percentage of each revenue dollar converts to cash available for shareholders.

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Worked Example 1: Adobe — "The Gold Standard"

Adobe Q4 FY2025 FCF Calculation

Step 1: Find Operating Cash Flow From Adobe's FY2025 10-K (filed January 15, 2026):

"Cash flows from operations of $10.03 billion during fiscal 2025 increased by $1.98 billion, or 25%"

Q4 Operating Cash Flow: $2,198 million

Step 2: Find Capital Expenditures Q4 CapEx: $72 million

Step 3: Calculate FCF

FCF = $2,198M - $72M = $2,126M

Step 4: Calculate FCF Margin Q4 Revenue: $5,989 million

FCF Margin = $2,126M ÷ $5,989M = 35.5%

TTM Numbers:

• FCF: $9.6 billion
• FCF Margin: 41.4% (TTM includes Q1-Q3 at ~43% margin; Q4's 35.5% pulled it down)
• FCF Trend (Q.TREND8): +4.8% (margin expanding)

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Worked Example 2: Zoom — "The FCF Margin Surprise"

Zoom Q2 FY2026 FCF Calculation

Step 1: Operating Cash Flow From Zoom's Q2 FY2026 10-Q (filed November 25, 2025):

"Free Cash Flow increased to $1,585.6 million from $1,392.5 million" (9-month)

Q2 Operating Cash Flow: $516 million

Step 2: Capital Expenditures Q2 CapEx: $8 million

Step 3: Calculate FCF

FCF = $516M - $8M = $508M

Step 4: Calculate FCF Margin Q2 Revenue: $1,217 million

FCF Margin = $508M ÷ $1,217M = 41.7%

The Analytical Insight Most Miss

ZM's FCF margin exceeds ADBE's. Why?

Metric	Zoom	Adobe	Advantage
FCF Margin Q	41.7%	35.5%	ZM +6.2pp
CapEx as % Revenue	0.7%	1.2%	ZM
Gross Margin	77.6%	89.3%	ADBE

Adobe has higher gross margins, but Zoom's ultra-low capital intensity (0.7% vs 1.2%) means more of each operating dollar flows through to shareholders.

The lesson: FCF margin isn't just about operating efficiency—it's about capital intensity. Pure software (Zoom) can beat software + physical infrastructure (Adobe) on cash generation.

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Worked Example 3: Snowflake — "When Growth Doesn't Mean Cash"

Snowflake Q3 FY2026 FCF Calculation

Step 1: Operating Cash Flow Derived from FCF + CapEx (OCF not directly stored for Q): Quarterly OCF: $138 million (derived)

Step 2: Capital Expenditures Q3 CapEx: $24 million

Step 3: Calculate FCF

FCF = $138M - $24M = $114M

Step 4: Context from Filings

"Consumption-based revenue model provides flexibility for customers but creates less visibility into revenue timing compared to traditional subscriptions."

The SNOW Paradox Explained

Metric	Value	What It Means
Net Income TTM	-$1.35 billion	Massive GAAP loss
FCF Q	+$114 million	Positive cash generation
Cash Conversion	-0.65x	Meaningless (negative denominator)

How can a company lose $1.35B but generate positive cash?

Stock-based compensation (SBC) is the answer:

1. SBC flows through the income statement as an expense → creates net loss
2. SBC adds back to operating cash flow → doesn't consume cash
3. Result: Positive FCF despite negative net income

The actionable insight: For unprofitable growth companies, FCF tells you if the business model works on a cash basis. Net income is distorted by non-cash SBC. Snowflake's positive FCF means the core business generates cash—the accounting loss is a function of how employees are paid.

Warning signs despite positive FCF:

• FCF Margin Trend (Q.TREND8): -33.4% (margin collapsing)
• Revenue growth: 29% (slowing from prior periods)
• This trajectory suggests future cash flow stress

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Worked Example 4: Intuit — "Why Seasonality Destroys Single-Quarter Analysis"

Intuit Q1 FY2026 FCF Calculation

Step 1: Operating Cash Flow From Intuit's Q1 FY2026 10-Q (filed November 20, 2025): Q1 Operating Cash Flow: $637 million

Step 2: Capital Expenditures Q1 CapEx: $38 million

Step 3: Calculate FCF

FCF = $637M - $38M = $599M

Step 4: Compare to Q2 (Tax Season) Q2 Operating Cash Flow: $4,395 million Q2 CapEx: $35 million

Q2 FCF = $4,395M - $35M = $4,360M

The Seasonality Evidence

Quarter	FCF	FCF Margin	What's Happening
Q1 (Aug-Oct)	$599M	15.4%	Off-season
Q2 (Nov-Jan)	$4,360M	56.2%	Tax season peak
Variance	7.3x	+40.8pp	Working capital timing

From Intuit's 10-Q:

"Due to the seasonal nature of our TurboTax and ProTax offerings, they typically generate minimal revenue in our first fiscal quarter compared with our second and third fiscal quarters."

Why This Happens

The mechanism is working capital timing:

1. TurboTax customers file and pay during Q2 (January-April filing season)
2. Operating costs are spread throughout the year
3. Q2 sees massive cash collection; Q1 sees minimal
4. Result: 7.3x FCF variance between adjacent quarters

The critical lesson: Never judge a seasonal business on single-quarter FCF. Use TTM or annual figures only.

Intuit TTM FCF: $6.4 billion (32.9% margin)—a much more accurate picture than any single quarter.

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SaaS FCF Comparison: The Full Picture

Company	FCF Q	FCF TTM	FCF Margin Q	CapEx %	Key Teaching
Adobe	$2,126M	$9,599M	35.5%	1.2%	Mature benchmark
Zoom	$508M	$1,845M	41.7%	0.7%	Capex efficiency wins
Intuit	$599M*	$6,393M	15.4%*	1.0%	Seasonality trap
Snowflake	$114M	N/A	9.4%	2.0%	Growth ≠ cash

*Intuit Q1 only—not representative of annual performance.

The Capex Efficiency Spectrum

All four companies spend less than 2% of revenue on capital expenditures:

Company	CapEx Q	Revenue Q	CapEx %	Meaning
Zoom	$8M	$1,217M	0.7%	Pure software
Intuit	$38M	$3,886M	1.0%	Service platform
Adobe	$72M	$5,989M	1.2%	Creative cloud
Snowflake	$24M	$1,212M	2.0%	Cloud infrastructure

The insight: For SaaS companies, FCF ≈ OCF. The formula (FCF = OCF - CapEx) becomes almost trivial because CapEx is immaterial. The real analytical work is understanding operating cash flow drivers.

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Common FCF Calculation Mistakes

1. Forgetting CapEx Sign Convention

CapEx appears as a negative number in cash flow statements (cash outflow). When calculating FCF, subtract the absolute value:

FCF = $2,198M - (-$72M) ✗ WRONG
FCF = $2,198M - $72M ✓ CORRECT

2. Ignoring FCF Trends

Point-in-time FCF hides the trajectory:

• Adobe FCF margin trend: +4.8% (expanding)
• Intuit FCF margin trend: -0.8% (stable)
• Snowflake FCF margin trend: -33.4% (collapsing)

The trend often matters more than the current level. See the worked examples above for how seasonality (Intuit) and growth dynamics (Snowflake) affect single-quarter interpretation.

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Methodology and Data Sources

All data sourced from SEC EDGAR filings:

Company	Filing	Filed Date	Age
Adobe	FY2025 10-K	2026-01-15	5 days
Zoom	Q2 FY2026 10-Q	2025-11-25	56 days
Snowflake	Q3 FY2026 10-Q	2025-10-31	81 days
Intuit	Q1 FY2026 10-Q	2025-11-20	61 days

Metrics computed by MetricDuck:

• FCF = net_cf_ops - capex
• FCF Margin = fcf / revenues
• Trend calculations use Q.TREND8 (8-quarter linear regression slope)

Limitations:

• Seasonal businesses (Intuit) require TTM analysis
• Snowflake's OCF Q derived from FCF + CapEx due to data structure
• FCF margin trends may not persist

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Related Resources

• Earnings Quality: Complete Framework — Broader cash flow quality analysis
• FCF vs Earnings: Cash Conversion Framework — Why FCF and net income diverge
• Cash Flow Quality Analysis — OCF/NI ratio deep dive