Meaning
FCF yield compares free cash flow with market value.
Formula
Free cash flow / market capitalization
Practical reading
Higher values can indicate better cash-flow valuation, if cash flow is sustainable.
Calculation detail
FCF yield = free cash flow / market capitalization ร 100. An equivalent per-share form is free cash flow per share / share price ร 100.
What to check
A higher yield can indicate a cheaper cash valuation when cash generation is repeatable. Check several years, capital expenditure needs and whether debt must absorb most of the cash.
Limits and caveats
A temporarily low investment spend, a release of working capital or a depressed share price can make one year's yield look unusually high.