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Free cash flow margin surged to 53.8% in 2027Q1, with operating cash flow exceeding net income by 3.3x, though working capital swings and rising capex (15.3% of revenue) introduce volatility.
Arm Holdings plc American Depositary Shares (ARM) cash flow statement — 5-year operating, investing & financing cash flows
| Metric | TTM | Mar'26 | Mar'25 | Mar'24 | Mar'23 | Mar'22 |
|---|
| Cash from Operations | 2.09B | 1.52B | 397M | 1.09B | 739M | 458M |
| Operating CF Margin % | - | 30.98% | 9.91% | 33.71% | 27.58% | 16.94% |
| Operating CF Growth % | 9508.75% | 283.88% | -63.58% | 47.5% | 61.35% | - |
| Net Income | 1.04B | 904M | 792M | 306M | 524M | 549M |
| Depreciation & Amortization | 264M | 249M | 183M | 162M | 170M | 185M |
| Stock-Based Compensation | 1.15B | 1.05B | 820M | 1.04B | 79M | 26M |
| Deferred Taxes | -37M | 15M | -218M | -273M | -34M | -76M |
| Other Non-Cash Items | -207M | -94M | 285M | 53M | 73M | -38M |
| Working Capital Changes | -124M | -602M | -1.47B | -195M | -73M | -188M |
| Change in Receivables | -194M | -510M | -743M | -89M | 125M | -219M |
| Change in Inventory | 0 | 0 | 0 | 0 | 0 | 0 |
| Change in Payables | 0 | 0 | 0 | 0 | 0 | 0 |
| Cash from Investing | -220M | -325M | -35M | -516M | -138M | -619M |
| Capital Expenditures | -588M | -575M | -239M | -92M | -93M | -75M |
| CapEx % of Revenue | 11.4% | 11.69% | 5.96% | 2.85% | 3.47% | 2.77% |
| Acquisitions | 45M | 127M | -57M | -32M | -15M | -8M |
| Investments | - | - | - | - | - | - |
| Other Investing | -2M | 39M | 1M | -51M | 0 | 0 |
| Cash from Financing | -751M | -548M | -202M | -208M | -42M | -32M |
| Debt Issued (Net) | 0 | 0 | 0 | 0 | 0 | 50M |
| Equity Issued (Net) | -163M | 74M | 0 | 0 | 0 | 0 |
| Dividends Paid | 0 | 0 | 0 | 0 | 0 | 0 |
| Share Repurchases | -202M | 0 | 0 | 0 | 0 | 0 |
| Other Financing | -588M | -622M | -202M | -208M | -42M | -82M |
| Net Change in Cash | 1.1B | 666M | 162M | 369M | 550M | -210M |
| Free Cash Flow | 1.47B | 979M | 178M | 947M | 646M | 383M |
| FCF Margin % | 28.59% | 19.9% | 4.44% | 29.29% | 24.11% | 14.17% |
| FCF Growth % | 124.35% | 450% | -81.2% | 46.59% | 68.67% | - |
| FCF per Share | 1.37 | 0.92 | 0.17 | 0.91 | 0.63 | 0.37 |
| FCF Conversion (FCF/Net Income) | 1.41x | 1.69x | 0.50x | 3.56x | 1.41x | 0.83x |
| Interest Paid | 0 | 0 | 0 | 0 | 0 | 1M |
| Taxes Paid | 0 | 0 | 0 | 188M | 159M | 141M |
Quick answers to the most common questions about buying ARM stock.
Arm Holdings plc American Depositary Shares (ARM) generated $1.52B in net cash from operating activities in 2026. This reflects the cash generated directly from core business operations.
Arm Holdings plc American Depositary Shares (ARM) generated $979.0M in free cash flow in 2026. Free cash flow is the cash left over after capital expenditures, which can be used to pay dividends, repurchase shares, or pay down debt.
Arm Holdings plc American Depositary Shares (ARM) spent $575.0M on capital expenditures in 2026. CapEx represents the cash invested in physical assets like property, plant, and equipment to maintain or grow the business.
Key Metrics
Top Statement Risk
SBC dilution and working capital swings
Cash Conversion Volatile but Strong
ARM's operating cash flow exceeded net income by 3.3x in 2027Q1, per the latest financials, though 2025Q1 saw a negative ratio of -1.3, indicating significant timing effects.
The OCF/NI ratio swung from -1.3 in 2025Q1 to 3.34 in 2027Q1, driven largely by working capital swings and SBC add-backs. While the recent quarter shows robust conversion, the historical volatility suggests that reported earnings are not a reliable predictor of cash generation on a quarter-to-quarter basis. Investors should focus on the cumulative trend rather than any single period.
FCF Margin Expansion on Royalty Strength
Free cash flow margin reached 53.8% in 2027Q1, up from 14.5% a year earlier, as reported in the cash flow statement, reflecting strong royalty collections and disciplined capex.
The FCF margin improvement is notable, but it follows a period of negative FCF in 2025Q1 (-34.9%). The trajectory suggests that ARM's asset-light model can generate high incremental cash flows when revenue accelerates, yet the volatility in working capital (e.g., WC Chg of $389M in 2027Q1 vs -$469M in 2026Q4) means that quarterly FCF can be lumpy. The 2027Q1 FCF of $694M is the highest in the ten-quarter window, indicating a potential inflection point.
Capex Intensity Rising with Growth
Capital expenditures as a percentage of revenue climbed to 15.3% in 2027Q1, up from 2.0% in 2024Q4, based on reported figures, suggesting increased investment in infrastructure and design tools.
The rise in capex intensity may indicate a shift from pure licensing to more capital-intensive activities, possibly related to cloud or data center expansion. However, the absolute capex remains modest relative to revenue, and the high FCF margin suggests that ARM can fund this investment internally. The increase in capex could be a response to growing demand for its architecture, but investors should monitor whether this trend persists.
Working Capital Swings Drive Cash Flow Volatility
Working capital changes ranged from -$726M in 2025Q1 to +$451M in 2024Q4, as per the cash flow statement, indicating significant timing effects in collections and payments.
The large swings in working capital are a primary driver of the volatile operating cash flow. For instance, 2025Q1 saw a negative working capital change of -$726M, which contributed to negative OCF, while 2027Q1 saw a positive $389M. This pattern suggests that ARM's cash conversion is heavily influenced by the timing of royalty payments and licensing fees, which may be lumpy. Investors should not over-interpret single-quarter working capital movements.
Capital Deployment Focused on Buybacks
ARM repurchased $202M in 2026Q2 and $85M in 2026Q1, with no dividends paid, according to the cash flow statement, indicating a preference for share buybacks over cash returns.
The buyback activity is modest relative to the company's market cap, but it signals a willingness to return capital to shareholders. The absence of dividends suggests that management is prioritizing reinvestment and buybacks. The acquisition activity is minimal, with net acquisitions of -$74M in 2027Q1, indicating a conservative M&A approach. Overall, capital deployment appears measured and focused on enhancing shareholder value through buybacks.
Cumulative Cash Generation Exceeds Earnings
Over the trailing ten quarters, cumulative operating cash flow of $3.53B exceeds cumulative net income of $2.19B, as per the cash flow statement, indicating high earnings quality.
The cumulative OCF/NI ratio of 1.61 suggests that ARM's earnings are backed by strong cash generation, largely due to non-cash charges like SBC and D&A. However, the gap between net income and OCF is not consistent; in some quarters, OCF is lower than net income due to working capital outflows. The overall trend indicates that ARM's reported earnings are of high quality, but the volatility in working capital warrants attention.
SBC Distorts Cash Flow Comparisons
Stock-based compensation averaged $220M per quarter over the last ten quarters, as reported in the cash flow statement, which is a significant non-cash expense that inflates operating cash flow relative to net income.
While SBC is added back to operating cash flow, it represents a real economic cost to shareholders through dilution. The magnitude of SBC relative to net income (e.g., $343M vs $270M in 2027Q1) suggests that reported OCF may overstate the cash available to shareholders. Investors should consider the dilutive impact of SBC when evaluating ARM's cash generation and valuation.