QualityRev CAGR 5Y#56
Free Cash Flow Conversion expresses how efficiently a company converts capital into earnings.
By Javier Sanz, Founder & Lead AnalystEditorially reviewed
Last updated: Reviewed by: Javier Sanz
Formula
(Revenue_now / Revenue_5y_ago)^(1/5) - 1
Description
Compound annual growth rate of revenue over five years. A longer time horizon that captures a full business cycle and filters out temporary boosts or headwinds. This is useful for assessing the company's secular growth trend.
Interpretation
Above 8% over five years is solid for most industries. Compare to GDP growth and industry growth rates. Consistent 5Y CAGR above 15% in a large company is rare and signals a strong competitive position.
Related metrics: Return on Equity (ROE), Return on Assets (ROA), Return on Invested Capital (ROIC). (Updated 2026)
Further Reading
- SEC EDGAR primary filings on Free Cash Flow Conversion (FCF Conversion)- Primary source filings used to calculate Free Cash Flow Conversion (FCF Conversion).
FAQ
How is Free Cash Flow Conversion calculated?+
Free Cash Flow Conversion uses the formula: (Revenue_now / Revenue_5y_ago)^(1/5) - 1. compare against sector median on /screener with the Sector filter applied. ValueMarkers refreshes the calculation within 24 hours of each new SEC filing using SEC EDGAR 10-K + 10-Q filings (segment-level disclosures).
What is a good Free Cash Flow Conversion value by sector?+
There is no single 'good' value for Free Cash Flow Conversion — context is sector-driven. compare against sector median on /screener with the Sector filter applied. The /screener exposes sector-relative percentiles for Free Cash Flow Conversion on every ticker, so you can compare against the sector median rather than the broad-market median.
Which investors use Free Cash Flow Conversion?+
Charlie Munger, Joel Greenblatt, Terry Smith cite Free Cash Flow Conversion as a key input to to find compounders with durable economic moats. The academic anchor is Greenblatt (2005) Magic Formula and Mauboussin (2014). ValueMarkers weights this within the Quality pillar of the VMCI score (30% of total).
What are the limitations of Free Cash Flow Conversion?+
Free Cash Flow Conversion can mislead in asset-light businesses where conventional capital ratios mislead. Pair Free Cash Flow Conversion with at least two cross-checks from other VMCI pillars — for example, free cash flow trend, balance-sheet quality, and earnings consistency — before drawing a single-metric conclusion.
Where can I see live Free Cash Flow Conversion data?+
Visit any /stock/[ticker] page on ValueMarkers to see live Free Cash Flow Conversion data, sector percentiles, and the VMCI composite score that integrates Free Cash Flow Conversion with 119 other indicators across 100,000+ stocks. The free /screener exposes Free Cash Flow Conversion as a filterable column.
Related Quality Indicators
Return on Equity (ROE)Op Margin
Return on Equity measures how efficiently a company converts capital into earnings.
Return on Assets (ROA)Net Margin
Return on Assets is the metric used to how efficiently a company converts capital into earnings.
Return on Invested Capital (ROIC)EBITDA Margin
Return on Invested Capital measures how efficiently a company converts capital into earnings.
Return on Capital Employed (ROCE)FCF Margin
Return on Capital Employed is the metric used to how efficiently a company converts capital into earnings.
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