FCF yield

Free-cash-flow yield divides per-share free cash flow by the share price. It is the cash analogue of earnings yield and answers a deceptively simple question: if the business never grew, what cash return would I earn on today's price? A 6% FCF yield on a flat business is comparable to a 6% bond, but unlike a bond, the cash flow has no maturity and historically grows with inflation. The strength of FCF yield is that it is hard to fudge: cash is cash, and free cash flow is generally less manipulable than reported earnings. The weakness is that it can mislead during heavy investment phases, when free cash flow is depressed by capital expenditures that have not yet produced revenue. A young software company spending aggressively on R&D and sales capacity may show a 1% FCF yield that says nothing about steady-state economics. We always pair raw FCF yield with a normalized version that strips out one-time working-capital swings and adjusts for maintenance versus growth capex. For mature, capital-light businesses with stable reinvestment, FCF yield above the ten-year Treasury is the fastest sanity check on whether a stock is plausibly cheap; for high-growth names, owner earnings (net income plus D&A minus maintenance capex) is the more honest framing.