Definition
FCF yield is the inverse of the price-to-free cash flow ratio, expressing the cash return an investor receives relative to the stock price. A high FCF yield (8%+) suggests the company generates substantial cash relative to its price—potentially undervalued or returning significant capital to shareholders. FCF yield is conceptually similar to earnings yield but based on cash generation.
functions Formula
FCF Yield = Free Cash Flow Per Share / Share Price × 100%
lightbulb Example
FCF per share is $4 and stock trades at $50. FCF yield = 8%. This exceeds the 10-year Treasury yield of 4.2%, suggesting attractive cash-flow generation.
verified_user Key Points
- Inverse of P/FCF ratio
- Higher yield suggests better value
- Compare to bond yields for relative attractiveness
- Above 5% often considered attractive for large-caps