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.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Earnings Per Share - EPS

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

    A ratio that illustrates the percentage of free cash flow to ...
  4. Free Cash Flow To Equity - FCFE

    This is a measure of how much cash can be paid to the equity ...
  5. Default

    1. The failure to promptly pay interest or principal when due. ...
  6. Free Cash Flow Per Share

    A measure of a company's financial flexibility that is determined ...
RELATED FAQS
  1. When does Q4 start and finish?

    Most companies such as Facebook have financial years that end on December 31st. For these companies, the fourth quarter begins ... Read Full Answer >>
  2. Which is better: A high or low equity multiplier?

    An equity multiplier measures a company's financial leverage by using a ratio of the company's total assets to its stockholders' ... Read Full Answer >>
  3. How does the combined ratio measure the financial health of insurance companies?

    The combined ratio measures the profitability of an insurance company by examining its earned premium from its policyholders ... Read Full Answer >>
  4. What are the key barriers to entry for companies in the electronics sector?

    The electronics industry includes consumer electronics, specialized electronics for other industries and component parts ... Read Full Answer >>
  5. What is the difference between net income and cash flow from operating activities?

    Net income is a line item in the operating activities section of the cash flow statement. Net cash flow from operating activities ... Read Full Answer >>
  6. What is the difference between work in progress (WIP) and finished goods in accounting?

    Work in progress (WIP) and finished goods are broad classification terms used in accounting for inventory to specify the ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Discounted Cash Flow Analysis

    Find out how analysts determine the fair value of a company with this step-by-step tutorial and learn how to evaluate an investment's attractiveness for yourself.
  2. Markets

    How To Use Price-To-Sales Ratios To Value Stocks

    Take a look at how this effective ratio can be influenced by certain critical factors.
  3. Forex

    Understanding Free Cash Flow

    Cash in the bank is what every company strives to achieve. Find out how to determine how much a company is generating and keeping.
  4. Markets

    Free Cash Flow: Free, But Not Always Easy

    Free cash flow is a great gauge of corporate health, but it's not immune to accounting trickery.
  5. Forex Education

    Free Cash Flow Yield: The Best Fundamental Indicator

    Cash in the bank is what every company strives to achieve. Find out how to determine how much a company is generating and keeping.
  6. Bonds & Fixed Income

    Equity Premiums: Looking Back And Looking Ahead

    If stocks become less profitable in the future, you may have to change your investment strategy.
  7. Fundamental Analysis

    Why Last In First Out Is Banned Under IFRS

    We explain why Last-In-First-Out is banned under IFRS
  8. Economics

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.
  9. Economics

    International Financial Reporting Standards (IFRS)

    International Financial Reporting Standards are accounting rules and guidelines governing the reporting of different types of accounting transactions.
  10. Economics

    Explaining Property, Plant and Equipment

    Property, plant and equipment are company assets that are vital to business operations, but not easily liquidated.

You May Also Like

Hot Definitions
  1. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  2. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  3. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  4. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  5. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  6. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
Trading Center