Free Cash Flow Yield

FCF Yield is the inverse of the Price/FCF or EV/FCF multiple. A company trading at 10x EV/FCF has a 10% FCF yield; one at 25x has a 4% yield. Value investors screen for high FCF yields (8%+) as potential bargains. Growth investors accept low yields (2–4%) because they expect FCF to grow rapidly. Distressed companies can show very high yields, but the FCF may not be sustainable.

FCF Yield can be calculated on an enterprise value basis (FCF / EV) or equity basis (FCF / Market Cap). The EV-based version uses unlevered FCF and is capital-structure-neutral, making it better for comparing companies with different leverage. The equity-based version uses levered FCF and reflects returns to equity holders specifically. In practice, most analysts use the EV-based version for comparability.

FCF Yield is widely used in screening, comp tables, and LBO analysis. In an LBO, a high FCF yield means the company generates significant cash relative to the purchase price, which can be used for debt paydown. Buyout firms often target companies with 8–12% FCF yields. In public markets, comparing FCF yield across peers helps identify relative mispricing within a sector.