Valuation · updated October 21, 2026
What is free cash flow yield (FCF yield) and how is it calculated
Free cash flow yield shows how much cash is left to the company each year, after paying for its investments, compared with its market value. Think of it as the yield of the business: this cash pays dividends, buys back shares and pays down debt.
Free cash flow yield formula
- Free cash flow
- Cash from operations minus money spent on investment (equipment, buildings, software).
- Market cap
- The share price times the number of shares.
Worked example
A company is worth $100 billion on the market and generates $6 billion of free cash flow in a year.
If you bought the whole company, it would produce 6% a year in real cash, before any growth.
How to read free cash flow yield
Compare it with the interest on savings or government bonds. A cash yield well above the interest rate usually points to a cheap stock.
When free cash flow yield can fool you
One good year: cash can jump from a one-time payment. Cut investment: a company that stops investing shows high free cash flow for a while, then pays for it later.
Related terms
Questions about free cash flow yield
Why is it harder to fake than P/E?
Because cash is harder to inflate with accounting than profit. The money either reached the bank account or it did not.
These explanations are for information only. They are not a recommendation to buy or sell.
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