1. Find operating cash flow
On the cash flow statement, take 'cash from operating activities' for the trailing twelve months.
How to calculate
How to calculate FCF yield
To calculate FCF yield, divide a company's annual free cash flow by its market capitalization, then multiply by 100 to express it as a percent. Free cash flow is operating cash flow minus capital expenditures, both found on the cash flow statement. A $700M free cash flow on a $10B market cap is a 7% FCF yield.
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Short answer
FCF yield = free cash flow / market cap x 100. Free cash flow is operating cash flow minus capex (both on the cash flow statement). For a stricter, debt-aware version, divide by enterprise value instead of market cap.
Step by step
2. Subtract capital expenditures
Subtract capex (cash flow statement, under investing activities) from operating cash flow to get free cash flow.
3. Find market capitalization
Multiply shares outstanding by the current share price, or read it off any quote page.
4. Divide and convert to a percent
FCF yield = free cash flow / market cap x 100. For the stricter version, use enterprise value as the denominator.
Worked example
A company reports $1.0B of operating cash flow and $300M of capex, so free cash flow is $700M. Its market cap is $10B (200M shares x $50).
FCF yield = 700 / 10,000 x 100 = 7 percent. If it instead carried $2B of net debt, the enterprise-value version would be 700 / 21,000 x 100 = 5.8 percent, lower, because a buyer also takes on the debt.
FCF yield calculator
Enter the three inputs (millions for the cash figures) to get FCF yield.
Result-
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Related
- What is FCF yield? - the full definition and how it compares to P/E and dividend yield.
- What is a good FCF yield? - the benchmark ranges once you've calculated it.
- What is free cash flow? - operating cash flow minus capex: the numerator, explained.
Skip the math
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Educational only. invest-like is not a registered investment adviser; nothing here is personalised investment advice. Always do your own research and consider your individual circumstances.