Article · 14 min read

SaaS Cash Flow Analysis Explained

Lighter Capital Free Beginner

Connects the billing decision to the number that actually matters, which is how long you survive. Gives you three ratios to track and makes the point that negative cash flow is not automatically bad, so long as you know which kind you have.

• Free cash flow margin is operating cash flow minus capex, divided by revenue.
• Cash flow coverage ratio is net operating cash flow over total debt, the test of whether you can service debt.
• Look at cash flow over the trailing 6 to 12 months, and use a 12 month average to strip out seasonality under accrual accounting.