Are we generating or consuming cash?

MetricFree cash flow margin

Unitpercent of revenue

Single line of FCF (operating cash flow minus capex) over quarters. Pull from cash flow statement. Crossing zero (turning cash positive) is a meaningful milestone. Example: -$2.4M Q1, -$0.8M Q3, +$0.6M Q4 (turned profitable in Q4, sustainable?).

FCF

Free cash flow. Operating cash flow minus capital expenditure.

two populations reported separately: private B2B SaaS at roughly $10M to $100M ARR for FY2024 to FY2025, and the largest 1,000 US listed nonfinancial companies for FY2024 · The two populations should never share a chart axis. Hackett puts operating cash flow at 16 percent of revenue for the largest US listed nonfinancials, which is a mature-company reading and roughly three points below their 19 percent EBITDA margin. Private software sits far lower, with the 2025 efficiency frontier clustering the median near 21 percent growth and a mid single digit FCF margin and the top quartile near 50 percent growth with a low double digit margin. AI-native software is a third population entirely: ICONIQ reports a median FCF margin around -126 percent for AI-native companies under $100M ARR. Definitions also differ on whether capitalised software development is deducted and on how deferred revenue movements are treated, which for a subscription business can be the whole of the reported margin.

Free cash flow improves in the quarter but the improvement sits entirely in the working capital bar of the bridge, so operating cash rises while payables stretch, and the following quarter hands it all back.

FCF swings from minus $1.8M to minus $0.3M in Q4 while DPO moves from 41 to 68 days, then falls to minus $2.1M in Q1 when three suppliers reset terms.

• Split the FCF chart into EBITDA, working capital movement and capital expenditure so a quarter bought with payables stretching cannot be presented as an operating improvement. Hackett's 2025 work found the entire US cash conversion cycle improvement came from a 3 percent DPO move rather than from receivables or inventory, which is this exact pattern at index level.
• Fix the software capitalisation policy and hold it constant across periods. Moving development cost between opex and capex changes EBITDA without changing FCF, so a bridge that reconciles both is the only version a board should see, and the policy should be restated whenever the R&D mix changes.
• Add a deferred revenue line to the bridge for any subscription business. A company can print positive FCF purely on annual prepay growth, and that line reverses first when growth slows, which is the most common reason a positive FCF trend breaks without warning.
• Report FCF margin next to growth rate on a two-axis chart rather than alone. ICONIQ finds a point of growth worth nearly twice a point of FCF margin in valuation terms, so a margin improvement bought with a growth cut is usually value destructive and the single-line chart hides that trade.

1. The Hackett Group2025 U.S. Working Capital Survey · 2025 · n=top 1,000 U.S. publicly traded nonfinancial companies, FY2024 Reports operating cash flow at 16 percent of revenue for the top 1,000 US listed nonfinancial companies in 2024, with EBITDA margin at 19 percent, up 6 percent year over year, and capital expenditure up 5 percent. thehackettgroup.com ↗
2. NYU Stern (Aswath Damodaran)Margins by Sector (US) · 2026 · n=5,994 U.S. listed firms, 4,822 excluding financials, data as of January 2026 Puts EBITDA to sales at 17.42 percent and after-tax operating margin at 12.33 percent for US listed companies excluding financials as of January 2026. pages.stern.nyu.edu ↗
3. ICONIQ GrowthState of Software 2025: Rethinking the Playbook · 2025 · private B2B software companies in the ICONIQ benchmark set Reports that the Rule of 40 has become the most reliable predictor of software valuation, and that a one-point increase in revenue growth has nearly twice the valuation impact of an equivalent increase in free cash flow margin. iconiq.com ↗
4. SaaStr (reporting ICONIQ)ICONIQ's State of Software in 2025 · 2025 · secondary reporting of the ICONIQ State of Software 2025 dataset Reports a median free cash flow margin of about -126 percent for AI-native companies under $100M ARR, against traditional SaaS peers that took five or more years to reach comparable growth milestones. saastr.com ↗
5. High Alpha2025 SaaS Benchmarks Report · 2025 · n=800+ SaaS companies worldwide, 9th annual edition Reports that median growth rates held steady across all ARR bands from 2024 to 2025 while revenue per employee kept rising, indicating margin improvement is coming from efficiency rather than from growth. highalpha.com ↗
6. Benchmarkit2025 B2B SaaS Performance Metrics Benchmarks · 2025 · n=~1,000 private B2B SaaS companies, FY2024 data Publishes free cash flow and EBITDA benchmarks alongside Rule of 40 for private B2B SaaS, with private company operating expense summing above 100 percent of revenue at the median. benchmarkit.ai ↗
7. KeyBanc Capital Markets and Sapphire Ventures16th Annual Private Company SaaS Survey · 2025 · private SaaS companies, 16th annual edition, FY2024 and FY2025 expectations Reports private SaaS EBITDA margins improving every year since 2022 and expected to breach the profitability threshold in 2026. prnewswire.com ↗
8. T2D3The Great Recalibration: B2B SaaS Performance, Metrics, and the Hybrid Mandate in 2025 · 2026 · secondary synthesis of 2025 SaaS benchmark datasets Describes the 2025 efficiency frontier with the median SaaS company at about 21 percent ARR growth and a 5 percent free cash flow margin, the top quartile at about 50 percent growth with 10 percent margins, and AI-native firms clustered near 100 percent growth at about -15 percent margins. t2d3.pro ↗