Free Cash Flow Yield is a financial metric that provides insight into the profitability and financial health of a company. It’s calculated by dividing the free cash flow generated by a company by its market capitalization. Free cash flow is the amount of cash a company generates from its operations after accounting for capital expenditures (investments in property, equipment, etc.) necessary to maintain and grow its business.

Free cash flow yield formula

Free Cash Flow Yield = Free Cash Flow / Market Capitalization

This metric helps investors and analysts evaluate the return they might receive on their investment relative to the cash generated by the company. A higher free cash flow yield could indicate that the company is generating significant cash relative to its market value, which could be seen as attractive to investors seeking income or value. On the other hand, a lower free cash flow yield might suggest that the company’s cash generation is not as strong compared to its market value.

Like any financial metric, Free Cash Flow Yield should be considered along with other factors and industry benchmarks to get a comprehensive understanding of a company’s financial health and investment potential. It’s important to analyze this metric in conjunction with other financial ratios and qualitative factors to make informed investment decisions.