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Free Cash Flow Yield

Free cash flow yield formula

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


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How to calculate

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

  1. Find the company's free cash flow for the last twelve months.
  2. Find the stock's market capitalization (market cap).
  3. Divide the free cash flow number with the market cap.
  4. 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%.