Free cash flow yield
FCF Yield
Free cash flow yield is the surplus cash a business generates in a year as a percentage of its market cap. It is the earnings yield computed on cash that actually exists.
Formula
FCF yield
FCF Yield (%) = Free Cash Flow ÷ Market Cap × 100
Benchmark: Higher is better; a positive earnings yield with a negative FCF yield is a warning
Reading the number
Earnings yield uses reported profit. FCF yield uses operating cash flow minus the reinvestment the business cannot avoid. For a company with honest accounting and modest capital needs the two are close. When they diverge, the FCF yield is the one to trust, because it is the money that could actually be paid out as dividends, used for buybacks, or left to pile up as cash.
Indian example
Related ratios
Glossary terms
From the research
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