Free Cash Flow Yield (FCF yield): Definition and Usage
FCF yield is free cash flow per share divided by market price per share (or FCF / MarketCap). It measures cash generation relative to price.
Formula
Use trailing twelve months (TTM) or normalized FCF. For comparability, use the same FCF definition across peers.
Notes
- FCF yield is a direct measure of cash return relative to value — higher yields can indicate better cash generation or undervaluation.
- Complement FCF yield with growth and quality metrics — a one-off high FCF may not persist.
- Use in valuation frameworks like DCF as a sanity check against implied yields from prices.
Why it matters
FCF yield represents the cash-generating power of a business relative to its market price. It's a fundamental metric for value investors as it directly measures the cash available to shareholders and can be compared to bond yields to assess relative value.