New to this? Read the plain English guide first.
Cash from operations minus capital spending, plus the free cash flow yield.
Free cash flow shows how much real cash a business has left after paying its operating costs and investing in equipment and buildings. It is the money available for dividends, buybacks, debt repayment and growth. Many investors trust it more than profit because it is harder to flatter with accounting choices.
Free cash flow equals cash from operating activities minus capital expenditures. FCF yield equals free cash flow divided by market cap, shown as a percentage.
A company reports $60 million in operating cash flow and spends $20 million on capex. Free cash flow is $40 million. With a market cap of $800 million, the FCF yield is 5 percent, which you can compare with what safe bonds pay and with similar companies.
Look at five years of free cash flow, not one. Growing and stable FCF is a strong sign. Negative FCF is not always bad for a young company, but compare it with the cash on hand to see how long the company can last.
Ignoring stock based compensation paid in shares, using one lumpy quarter, and treating all capex as growth when some is just maintenance.
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For education only, not investment advice. Results are estimates based on the numbers you enter.