FCF Yield
Free Cash Flow divided by Market Capitalization -- the equity FCF yield, which reads like a bond yield on your investment: a 6% FCF yield means the business generates 6 cents of free cash for every dollar of market value. (This is the denominator the platform uses.) For a leverage-aware view, FCF divided by Enterprise Value -- the inverse of EV/FCF -- is the more conservative variant; use it when comparing firms with very different debt loads, because market-cap yield flatters a heavily indebted company. Common misuse: treating a single year's FCF as representative. FCF is volatile by design -- a single year of heavy capex or working-capital build can halve it. Use a 3-5-year trailing average for cyclical businesses, and always check whether the FCF figure includes or excludes stock-based compensation (the standard practitioner adjustment is to subtract SBC).
Formula
FCF / Market Cap = {fcf} / {marketCap}
Why it matters
The single most important yield metric for value investors. Unlike earnings, FCF can't be easily manipulated by accounting choices. It measures the actual cash the business generates that could be returned to shareholders.
How to read it
Always check leverage — FCF Yield understates risk in highly leveraged firms (FCF / Enterprise Value is the more conservative variant for those cases). Compare to the 10Y Treasury yield — a meaningful premium over the "risk-free" rate is the rough hurdle. Sector context matters: mature consumer staples might trade at 4-6%; high-growth software at 1-3%; cyclicals can show 8%+ at trough earnings (which is when they're most dangerous, not most attractive). Lakonishok, Shleifer & Vishny (1994) showed that high cash-flow-to-price stocks outperformed glamour stocks by ~8% annually over 5-year horizons.
Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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