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Free cash flow yield

Free cash flow yield is a company’s free cash flow divided by its value (enterprise value or market cap): the cash the business produces per dollar the market prices it at.

Free cash flow is the cash a business generates from operations after its capital spending. Dividing it by enterprise value gives a yield that can be compared with bond yields or with other companies, much as an earnings yield is the inverse of a P/E.

A low yield means the price is high next to today’s cash generation, which is only reasonable if that cash grows fast. stocks-llm’s reverse DCF does not read a company whose free cash flow is under 0.5% of its enterprise value: the base is too small for the model to say anything useful.

How the valuation method works →

Related terms

  • Market capitalization — Market capitalization (market cap) is the total value of a company’s shares — its share price multiplied by the number of shares outstanding.
  • P/E ratio (price-to-earnings) — The P/E ratio divides a company’s share price by its earnings per share, showing how much investors pay for each dollar of profit.
  • PEG ratio — The PEG ratio divides a company’s P/E by its earnings-growth rate, so a fast grower and a slow grower can be compared on valuation more fairly than by P/E alone.
  • EV/EBITDA — EV/EBITDA compares a company’s enterprise value to its earnings before interest, taxes, depreciation, and amortization — a capital-structure-neutral valuation measure.
  • EBITDA — EBITDA is earnings before interest, taxes, depreciation, and amortization — a measure of operating profitability that ignores financing and non-cash charges.

See more terms in the stocks-llm glossary.

Informational only — NOT financial advice. This is an educational definition, not a recommendation to buy or sell anything. Metrics on stocks-llm are delayed data and may be missing or stale. Always verify information independently and consult a qualified financial professional before making any investment decision.