How to use the free cash flow yield calculator
- Enter operating cash flow and capital expenditures.
- Enter the market value of the equity.
- Optionally enter revenue, shares outstanding, debt and cash.
- Read the free cash flow, its yield and the margin, per-share and enterprise value versions.
Formula
Free cash flow = operating cash flow - capital expenditures
Yield = free cash flow / market value of the equity
Enterprise value = market value + debt - cash. Enterprise yield = free cash flow / enterprise value
Margin = free cash flow / revenue. Per share = free cash flow / shares
Use one unit for every figure, such as millions of dollars. Yields and margins do not depend on the unit.
A company with 500 of operating cash flow
Capital expenditures of 200 leave free cash flow of 300. On a market value of 6,000 the yield is 5.00%, and with revenue of 2,500 the margin is 12.00%. Add debt of 1,200 and cash of 400, and the enterprise value is 6,800, so the enterprise yield is 4.41%.
If capital spending rises to 520, free cash flow is -20 and the yield is shown as (0.33%) in parentheses. With 100 shares outstanding, the 300 of free cash flow is 3.00 a share.
What free cash flow yield shows
Free cash flow is the cash a business has left after paying for the equipment and buildings it needs to keep going. Dividing it by the market value shows the cash return on the price, a bit like an earnings yield but based on cash. A higher number means more cash for each dollar of value, though it can also mean the market expects trouble.
The enterprise version includes debt and removes cash, so it compares businesses with different amounts of borrowing. It is the better choice when companies are financed very differently.
Be careful with the inputs
Free cash flow moves a great deal from year to year, and companies define capital spending in different ways. One strong year can make a yield look better than it is. The tool does arithmetic on the figures you enter and gives no investment advice. For valuation see the DCF Calculator and the Enterprise Value and Multiples Calculator, for dividends the Dividend Calculator, and for the earnings multiple the P/E Ratio Calculator.
Assumptions and limits
- Operating cash flow and capital spending cover the same period.
- Market value is the value of all the shares, not the price of one.
- The figures shown are examples. Use the numbers from your own statements.
- Debt and cash are optional. Without them only the market value yield is shown.
Frequently asked questions
Why are some results in parentheses?
Negative percentages and amounts are shown in parentheses so that a minus sign is never lost in a narrow column.
Which is better, market value or enterprise value?
The enterprise version is more even-handed between companies with different debt. The market value version matches what shareholders pay.
What if enterprise value is zero or negative?
The tool refuses it, because cash larger than market value and debt makes the ratio meaningless. Check your cash and debt figures.
Do I need revenue?
No. It is only used for the margin. Without it the table skips that line.