![]() ![]() By pulling together data from your existing systems, Mosaic significantly reduces the time your team spends compiling data and calculating metrics while reducing the possibility of human error. Mosaic can help make calculating and tracking important metrics like free cash flow even easier by automating the process. With an in-depth awareness of your company’s free cash flow, you’ll have the ability to make effective decisions for the future of your business, as well as understand how investors will view your company’s financial health and bottom line. Get A Better Understanding of the Health of Your Company with Advanced FCF Tracking By automating the tedious data collection and calculation processes month-to-month and quarter-to-quarter, you’ll be able to spend more time crafting the narrative of the true health of your business. Manual calculations across the entire financial reporting process can make it difficult to focus on the narrative when you present to investors and board members. For example, you may have a significant drop in free cash flow year-over-year - but it’s actually a positive event because you acquired a company that dramatically expanded your total addressable market. The result could be a misunderstanding of the company narrative by analysts and investors. This leaves investors to calculate free cash flow manually if you don’t parse it out on your own. The main challenge of tracking free cash flow is adding the necessary context to tell your company’s financial story well.įree cash flow doesn’t come with the same disclosure requirements that you see in other areas of finance reports, which means it’s not as straightforward as the rest of your financial statement line items. Like the rule of 40, anything above 40 in this calculation is considered “good” and bodes well for the valuation of your SaaS company. That’s great for companies that are progressing toward an IPO and can work even beyond that point.īut you should also consider evaluating “good” free cash flow in terms of Bessemer’s efficiency score - the sum of your growth percentage and free cash flow margin percentage. We often talk about using the SaaS rule of 40 to quickly gauge your balance between growth and profitability. Some investors and analysts believe that a good free cash flow for a SaaS company is anywhere from about 20% to 25%. To have a healthy free cash flow, you want to have enough free cash on hand to be able to pay all of your company’s bills and costs for a month, and the higher above that number, the better. That doesn’t mean you always have to have positive free cash flow - but it does mean that you have to strategically invest profits to continue growing.įree cash flow analysis can tell you many things, but it helps to understand what’s considered good free cash flow within your industry. This can make free cash flow and related metrics a critical part of your investor updates. Ultimately, they’ll want to see that you’re putting free cash flow to good use in terms of generating shareholder value. It gives investors a quick look at your company’s profitability and the starting point for a deeper analysis of your business model. These are all questions you can discuss internally, depending on whether or not you have good visibility into free cash flow.īut on the investor side, free cash flow matters because it gives people an idea of how healthy your business really is. Do you have the amount of cash needed to develop new products? Can you invest in expanding your presence into new markets? Are you able to buy back stock or pay dividends to keep investors happy? Is there an opportunity to acquire a company to improve your business? ![]() There are two sides to a discussion about why free cash flow matters - the internal side and the investor side.įree cash flow is an important part of overall cash flow analysis because it gives internal finance teams and executives an idea of the position you’re in to re-invest in the business. Why Does Free Cash Flow Matter? + How to interpret FCF The formula would be: Sales Revenue – (Operating Costs + Taxes) – Required Investments in Operating Capital = Free Cash Flow
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