Learn / Fundamentals / Valuation / FCF Yield
FCF Yield = Free Cash Flow ÷ Market Cap
This number tells you how much cash the business produces each year relative to what the whole company costs on the stock market. It is the cash return, not just the accounting profit.
01 Feel it first
Tap Next through the step builder: start with profit, add non-cash charges, subtract capex (cash spent on equipment and buildings). The last step divides free cash flow by market cap for the yield.
02 Break the intuition
Positive EPS (profit per share) with negative free cash flow — usually heavy equipment spending. Peel the cards to see the gap.
03 Build the formula
Tap the chips. Free cash flow is the cash left after running the business. Divide by market cap to get the yield.
$500M of free cash flow on a $10B market cap is the FCF yield — the cash return the business produces relative to what you pay for the whole company.
04 Scrub the scale
Drag the FCF yield slider across the quality bands. Negative means the business is consuming cash, not producing it.
At 5.0% FCF yield you sit in the Steady converter band. Above 6% often signals a strong cash generator. Below zero means reported profit but negative spare cash after equipment spending.
05 Two flavors
Same idea — cash left for owners — different adjustments.
06 The spectrum
Sample shapes — not forecasts. Ask what kind of cash engine you are buying.
07 Check yourself
08 Where it breaks
Inventory builds and slow-paying customers can make one year look flush and the next starved — without a real change in the business.
Not all capex is equal. Growth investment lowers near-term FCF on purpose; maintenance is the true keep-running cost.
A single big project year or asset sale swings FCF hard. Prefer a multi-year average before you trust the yield.
Banks and insurers do not have a clean industrial-style free cash flow. Prefer other cash and capital metrics for those models.
Open any stock for free cash flow, yield, and history — then screen for cash compounders instead of paper earnings alone.
Start with reported $10B net income — profit on paper.