Introduction to Free Cash Flow Yield

Free cash flow yield (FCFY) is a fundamental valuation metric that measures how much free cash flow a company generates relative to its market capitalization. It is widely used by professional investors to identify undervalued businesses and assess financial health.

What Is Free Cash Flow Yield?

FCF yield = Free Cash Flow ÷ Market Capitalization × 100%. Free cash flow is calculated as operating cash flow minus capital expenditures. A higher FCF yield generally indicates more cash generated per dollar of market value.

Why FCF Yield Matters

Unlike earnings-based metrics, FCF yield focuses on actual cash — money that can be used for dividends, buybacks, debt repayment, or reinvestment. This makes it more resistant to accounting manipulation and a preferred metric among value investors like Warren Buffett, Joel Greenblatt, and Terry Smith.