FCF Yield (Free Cash Flow Yield)
What percent of market cap free cash flow is — gauges the price against the cash the company actually generates.
In plain terms
Imagine buying the whole company and asking "what percent of the purchase price is the free cash that comes in each year." It is the same as asking "what annual rental yield" when you buy a building.
If P/E measures the price against earnings, FCF yield measures it against the cash actually left over. 5% means cash equal to 5% of the market cap comes in each year.
What it tells you
It bases the valuation on cash in hand rather than book earnings. It can filter out companies whose earnings look good but whose cash does not come in.
The higher it is, the lower the price relative to the cash it earns, so it is a yardstick often used in value investing.
Formula
FCF yield = free cash flow (FCF) ÷ market cap × 100 (similar to P/E inverted, but based on actual cash rather than earnings)
What high or low means
A high FCF yield means the price is relatively low versus cash generation (sometimes compared with government bond yields).
Low or negative means little or no cash is earned while the price is high — growth expectations may be heavily priced in.
A single year's FCF swings a lot with large capital spending (CapEx) or one-off factors. Look at the multi-year trend rather than one year's figure.
Aggressively investing growth companies deliberately run a low FCF. Low is not automatically bad.
The definition of FCF (whether only CapEx is subtracted, etc.) varies by company and calculation, so compare on the same basis.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see FCF and other 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.