QualityEPS R2#68
Free Cash Flow to Revenue measures how efficiently a company converts capital into earnings.
By Javier Sanz, Founder & Lead AnalystEditorially reviewed
Last updated: Reviewed by: Javier Sanz
Formula
R-squared of EPS regression over 5 years
Description
Measures how predictable and steady earnings per share have been over the past five years. Stable earnings make a company easier to value using P/E and DCF models. Benjamin Graham preferred companies with earnings stability as a margin of safety.
Interpretation
Above 0.85 indicates very stable, predictable earnings. Above 0.7 is acceptable. Below 0.5 suggests earnings are highly volatile or cyclical, which increases the risk of overpaying. Combine with revenue stability for a complete picture.
Related metrics: Return on Equity (ROE). (Updated 2026)
Further Reading
- SEC EDGAR primary filings on Free Cash Flow to Revenue (FCF/Revenue)- Primary source filings used to calculate Free Cash Flow to Revenue (FCF/Revenue).
FAQ
How is Free Cash Flow to Revenue calculated?+
Free Cash Flow to Revenue uses the formula: R-squared of EPS regression over 5 years. 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 to Revenue value by sector?+
There is no single 'good' value for Free Cash Flow to Revenue — 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 to Revenue on every ticker, so you can compare against the sector median rather than the broad-market median.
Which investors use Free Cash Flow to Revenue?+
Charlie Munger, Joel Greenblatt, Terry Smith cite Free Cash Flow to Revenue 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 to Revenue?+
Free Cash Flow to Revenue can mislead in asset-light businesses where conventional capital ratios mislead. Pair Free Cash Flow to Revenue 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 to Revenue data?+
Visit any /stock/[ticker] page on ValueMarkers to see live Free Cash Flow to Revenue data, sector percentiles, and the VMCI composite score that integrates Free Cash Flow to Revenue with 119 other indicators across 100,000+ stocks. The free /screener exposes Free Cash Flow to Revenue 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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