The free cash flow yield is a valuation metric that measures a company's free cash flow as a percentage of market capitalization.

A yield of 10% indicates that a stock generates 10% of its market cap in free cash flow each year. A higher yield is considered better because it means that the investor is paying less for each dollar produced in free cash flow.

### Key Points

- A high free cash flow yield indicates that a stock is cheap.
- The higher the FCF yield, the more excess cash the company generates.
- The excess cash can be used for many purposes, such as stock buybacks, dividends, acquisitions, etc.
- Stocks with high free cash flow yields can be good dividend payers and growers.
- This metric is similar to the earnings yield, except the earnings yield uses net income as the numerator in the equation.

## FCF Yield Calculator

## How to calculate

You can calculate the free cash flow yield in four steps:

- Find the company's free cash flow for the last twelve months.
- Find the stock's market capitalization (market cap).
- Divide the free cash flow number with the market cap.
- The result is a ratio. Multiply by 100% to get a percentage yield.

### Alternative method

If you know the free cash flow *per share*, then you can calculate by dividing the FCF/share number by the stock price. Then multiply by 100% to get a percentage yield.

## Example

As of June 14, 2020, Apple had free cash flow of 66.64 billion in the past 12 months. Their market cap was 1.47 trillion. This gives them a free cash flow yield of:

(66.64B / 1470B) * 100% = **4.53%.**