Free cash flow yield (FCF yield) is the free cash flow a company generates in a year divided by its market capitalization, shown as a percentage. Free cash flow is the cash left after the business has paid its operating costs and its capital expenditure. You can also do the same sum per share: free cash flow per share divided by the share price. The result tells you how much cash the business produces each year for every 100 you pay for it at today's price. It is the cash-based cousin of the earnings yield, which uses accounting profit instead of cash.
Worked example
A company has 100 million shares trading at $40, so its market capitalization is $4,000 million. Over the year it generates $260 million of operating cash flow and spends $60 million on capital expenditure, so free cash flow = $260 million − $60 million = $200 million. FCF yield = $200 million ÷ $4,000 million = 5%. The per-share route gives the same answer: free cash flow per share is $200 million ÷ 100 million = $2.00, and $2.00 ÷ $40 = 5%. If the reported net income is $160 million, the earnings yield is $160 million ÷ $4,000 million = 4%, so the cash-based figure is one percentage point higher here.
Why it matters
Profit on paper and cash in the bank can differ a lot, and FCF yield looks at the cash. That makes it a useful second opinion next to the earnings yield and the P/E ratio, especially for a business that spends heavily on equipment or whose profit is shaped by accounting choices. A higher yield is a question to look into, not an answer: it can reflect a business that really produces cash, or one whose cash is about to fall. A single year can also mislead, because capital spending is lumpy, so look at several years. Some sources divide by enterprise value instead of market capitalization, so check which denominator a figure uses before comparing. Free cash flow comes from the cash flow statement in the annual report.
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Frequently asked questions
There is no single good level, because it depends on the industry, the stage of the business and interest rates. A higher number is a prompt to ask why: is the cash lasting, or is it a one-off? Compare it with similar companies and with the same company's own past years, and look at several years rather than one.
Earnings yield divides accounting profit by the price. Free cash flow yield divides the cash left after capital spending by the market value. They can differ when a company spends a lot on equipment, or when its profit includes items that are not cash.
Both are used. Dividing by market capitalization is the simple version, and it matches the per-share method (free cash flow per share divided by the price). Dividing by enterprise value also accounts for debt. Whichever you pick, use the same one when you compare companies.
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Built & maintained by Worthmap · Last updated November 1, 2026
Educational use only. This tool provides estimates for informational purposes and does not constitute financial, investment, tax, or legal advice. Results are based on inputs you provide and mathematical models, they do not guarantee future performance. Always consult a qualified financial adviser before making investment decisions.