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Free Cash Flow Yield Calculator

Enter free cash flow and market capitalization to get the free cash flow yield.

How it is calculated

The formula is FCF yield = free cash flow / market capitalization × 100. Free cash flow is the cash a business generates from operations minus its capital spending, usually taken for the last twelve months or a full year. Market capitalization is the share price multiplied by shares outstanding. Both numbers must be in the same currency and the same scale, for example both in millions, because the units cancel out in the ratio. Market cap must be above zero. Free cash flow may be negative, which produces a negative yield. The result is a percentage to two decimals. The tool uses equity value only, so debt and cash on the balance sheet are not considered, unlike an enterprise-value version.

Worked example

A company reports free cash flow of 3,200 (millions) and has a market capitalization of 64,000 (millions). Divide: 3,200 / 64,000 = 0.05. Multiply by 100 to get a percentage: 5.00%. The tool shows a free cash flow yield of 5.00%. In plain terms, at today's price an owner of the whole company would receive about 5 units of free cash each year for every 100 units paid, and the reciprocal, 64,000 / 3,200 = 20, means the stock trades at 20 times free cash flow.

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Common mistakes

  • Mixing scales, such as free cash flow in millions and market cap in billions. The yield is then wrong by a factor of 1,000, so put both in the same unit.
  • Using operating cash flow instead of free cash flow. Capital expenditure must already be deducted, otherwise the yield is overstated.
  • Dividing by revenue or by enterprise value and calling it this yield. This tool divides by market capitalization only.
  • Using a single unusually good or bad year. One-off working-capital swings can distort free cash flow, so a multi-year average is often more telling.
  • Treating a high yield as automatically cheap. It can also reflect falling or unsustainable cash flow, and a negative result simply means the company burned cash.

Sources

About this calculator

Free cash flow yield is free cash flow ÷ market capitalization, expressed as a percentage — it tells you what cash return a buyer of the entire company at today's price would be getting, based on actual cash the business generates after capital spending, not accounting earnings.

Value investors often prefer it to the P/E ratio because free cash flow is harder to manipulate with accounting choices like depreciation schedules — a high free cash flow yield can flag an undervalued, cash-generative company, while a very low or negative one is a warning sign even if reported earnings look fine.

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Comments (1)

  • Editorial team

    One year of free cash flow can mislead, because capital spending and working capital swing from year to year. A useful check is to run the tool three times with the last three annual figures against the same current market capitalization and see how far the yield moves. Also compare the result with what a government bond currently pays, since the yield only means something against alternatives. Which source do you take your free cash flow figure from?

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