Free Cash Flow Yield

AAA

DEFINITION of 'Free Cash Flow Yield'

An overall return evaluation ratio of a stock, which standardizes the free cash flow per share a company is expected 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. To illustrate:

Free Cash Flow Yield

INVESTOPEDIA EXPLAINS 'Free Cash Flow Yield'

Free cash flow yield is similar in nature to the earnings yield metric, which is usually meant to measure GAAP earnings per share divided by share price. Generally, the lower the ratio, the less attractive the investment is and vice versa. The logic behind this is that investors would like to pay as little price as possible for as many earnings as possible.

Some investors regard free cash flow (which takes into account capital expenditures and other ongoing costs a business incurs to keep itself running) as a more accurate representation of the returns shareholders receive from owning a business, and thus prefer to free cash flow yield as a valuation metric over earnings yield.

VIDEO

RELATED TERMS
  1. Earnings Per Share - EPS

    The portion of a company's profit allocated to each outstanding ...
  2. Free Cash Flow To Sales

    A ratio that illustrates the percentage of free cash flow to ...
  3. Earnings Yield

    The earnings per share for the most recent 12-month period divided ...
  4. Cash Flow Per Share

    A measure of a firm's financial strength, calculated as: Cash ...
  5. Cash Flow Return on Investment ...

    A valuation model that assumes the stock market sets prices based ...
  6. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash ...
Related Articles
  1. Discounted Cash Flow Analysis
    Fundamental Analysis

    Discounted Cash Flow Analysis

  2. How To Use Price-To-Sales Ratios To ...
    Markets

    How To Use Price-To-Sales Ratios To ...

  3. Understanding Free Cash Flow
    Forex

    Understanding Free Cash Flow

  4. Free Cash Flow: Free, But Not Always ...
    Markets

    Free Cash Flow: Free, But Not Always ...

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center