What Does Free Cash Flow Yield Mean?
An overall return evaluation ratio on a stock that standardizes the free cash flow per share that a company expects to earn against its market price per share. The ratio is calculated by taking the free cash flow per share divided by the share price. It is calculated as follows:
Investopedia explains Free Cash Flow Yield
Free cash flow yield is similar to the earnings yield metric, which is a measure of GAAP earnings per share divided by share price. Generally, the lower the ratio is, the less attractive the investment is, and vice versa. Logically, investors want to pay as little as possible for more earnings. Some investors regard free cash flow (which takes into account capital expenditures and other ongoing costs of business) as a more accurate representation of a company and thus prefer free cash flow yield as a valuation metric over earnings yield.
Related Terms:
• Cash Flow Statement
• Free Cash Flow—FCF
• Free Cash Flow to Equity—FCFE
• Earnings per Share—EPS
• Yield
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