Corporate FinanceFinancial Glossary
Free Cash Flow Yield
Definition
Free cash flow per share divided by the current share price, expressed as a percentage. It measures how much free cash flow a company generates relative to its market valuation. A 5% FCF yield means the company generates Rs 5 in free cash flow for every Rs 100 of market value.
Why It Matters
FCF yield is a more reliable valuation metric than PE ratio because it is based on actual cash generation rather than accounting earnings. A company with high reported profits but low FCF yield may be inflating earnings through aggressive accounting. Stocks with FCF yields consistently above 5-6% in India often represent good value.