FCF Yield
What percentage of market cap free cash flow amounts to — a way to view the share price level against the cash a company actually generates.
FCF Yield = Free Cash Flow (FCF) ÷ Market Cap × 100
A high FCF yield is seen as a share price level on the lower side relative to cash generation (it is sometimes compared with government bond yields).
In plain terms
Imagine buying the whole company and asking, "what percentage of the purchase price comes in as free cash each year?" It's like buying a building and working out the annual rental yield.
If PER looks at the share price level against earnings, FCF yield looks at the cash that actually remains. At 5%, it means cash equal to 5% of the market cap comes in each year.
What it tells you
It looks at valuation based on the cash in hand rather than accounting profit. It can screen out companies whose earnings look fine but whose cash doesn't come in.
The higher it is, the lower the share price level relative to the cash generated, so it's a yardstick often used in value investing.
Formula
FCF Yield = Free Cash Flow (FCF) ÷ Market Cap × 100 (Similar to flipping PER upside down, but based on actual cash rather than earnings)
What high or low means
A high FCF yield is seen as a share price level on the lower side relative to cash generation (it is sometimes compared with government bond yields).
If it is low or negative, it means the company earns little or no cash while the share price is high, so a lot of growth expectations may be priced in.
A single year's FCF swings greatly with large capital expenditure (CapEx) or one-off factors. It shows up in the trend over several years rather than in one year's figure.
Growth companies that invest aggressively have low FCF on purpose. A low figure isn't automatically bad.
The definition of FCF (whether only CapEx is subtracted, etc.) differs by company and by calculation, so figures on different bases can't be set side by side.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see SEC-filing-based financial metrics alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.