FCF Yield
Learn how to calculate and interpret FCF Yield with its formula, a worked example, industry context and common mistakes.
Compares annual free cash flow with the company's market value.
Formula
FCF Yield = Free Cash Flow / Market Capitalization x 100%
Worked example$1.0 billion of FCF divided by a $20 billion market capitalization gives a 5% FCF yield.
Calculation steps
- Find annual or trailing FCF: $1.0 billion.
- Find current market capitalization: $20 billion.
- Divide and multiply by 100 to get 5%.
How to interpret it
A higher yield can indicate a cheaper valuation or greater perceived risk. Sustainability matters more than one year's result.
Industry context
Use peers with similar cyclicality and capital requirements. For leveraged comparisons, enterprise-value-based cash yields may add context.
Accounting and market variations
Definitions, reporting choices, periods, capital structures, and market conventions can change how this metric should be compared.
- Do not annualize an unusual quarter blindly.
- Keep market capitalization current.
- Check whether temporary working-capital benefits inflated FCF.