What is considered a good free cash flow yield? (2024)

What is considered a good free cash flow yield?

Free Cash Flow Yield determines if the stock price provides good value for the amount of free cash flow being generated. In general, especially when researching dividend stocks, yields above 4% would be acceptable for further research. Yields above 7% would be considered of high rank.

What is a good FCF percentage?

A “good” free cash flow conversion rate would typically be consistently around or above 100%, as it indicates efficient working capital management. If the FCF conversion rate of a company is in excess of 100%, that implies operational efficiency.

What is a good amount of free cash flow?

To have a healthy free cash flow, you want to have enough free cash on hand to be able to pay all of your company's bills and costs for a month, and the more you surpass that number, the better. Some investors and analysts believe that a good free cash flow for a SaaS company is anywhere from about 20% to 25%.

What is a bad free cash flow yield?

Put differently, this means that you didn't generate enough cash to cover your necessary operational expenses and capital expenditures. Business leaders and investors will interpret a negative FCF yield as a sign that the business cannot sustain its operations, nonetheless return capital to its investors.

What is the ideal price to free cash flow?

A good price-to-cash-flow ratio is any number below 10. Lower ratios show that a stock is undervalued when compared to its cash flows, meaning there is a better value in the stock.

What is the average FCF yield of the S&P 500?

As of July 31, 2023, the S&P 500 Sector-Neutral FCF Index had a 9.77% weighted average FCF yield versus 4.08% for the S&P 500 (see Exhibit 4).

Do you want a high or low FCF yield?

A higher free cash flow yield is better because then the company is generating more cash and has more money to pay out dividends, pay down debt, and re-invest into the company. A lower free cash flow yield is worse because that means there is less cash available.

What is free cash flow vs Ebitda?

Furthermore, EBITDA does not include capital expenditures. In free cash flow, on the other hand, all depreciation and changes in working capital and capital expenditures are added to the revenues and interest and tax payments are deducted.

Is too much free cash flow bad?

Having too much free cash flow, however, can indicate that a business is not properly leveraging its assets, as excess funds could be put toward expansion. On the other hand, the owner of a business with negative free cash flow should evaluate why FCF is negative.

What indicates a good cash flow?

Cash flow refers to money that goes in and out. Companies with a positive cash flow have more money coming in, while a negative cash flow indicates higher spending. Net cash flow equals the total cash inflows minus the total cash outflows. U.S. Securities and Exchange Commission.

What is the free cash flow yield of Apple?

Analysis. Apple's unlevered free cash flow yield for fiscal years ending September 2019 to 2023 averaged 4.5%. Apple's operated at median unlevered free cash flow yield of 4.3% from fiscal years ending September 2019 to 2023.

Is it better to have a higher free cash flow?

The best things in life are free, and that holds true for cash flow. Smart investors love companies that produce plenty of free cash flow (FCF). It signals a company's ability to pay down debt, pay dividends, buy back stock, and facilitate the growth of the business.

How do you evaluate free cash flow?

What is the Free Cash Flow (FCF) Formula? The generic Free Cash Flow (FCF) Formula is equal to Cash from Operations minus Capital Expenditures. FCF represents the amount of cash generated by a business, after accounting for reinvestment in non-current capital assets by the company.

What stocks have the best free cash flow?

Apple (APPL), Verizon (VZ), Microsoft (MFST), Walmart (WMT), and Pfizer (PFE) are five companies that could be considered free cash flow (FCF) "monsters" as a result of their history of having a huge amount of free cash flow (FCF).

Is a high FCF yield good?

A higher free cash flow yield is ideal because it means a company has enough cash flow to satisfy all of its obligations. If the free cash flow yield is low, it means investors aren't receiving a very good return on the money they're investing in the company.

What is the FCF per share of Tesla?

Tesla Price-to-Free-Cash-Flow Calculation

Tesla's Share Price of today is $177.00. Tesla's Free Cash Flow per Share for the trailing twelve months (TTM) ended in Dec. 2023 adds up the quarterly data reported by the company within the most recent 12 months, which was $1.25.

What is Pfizer FCF yield?

As of today, Pfizer's current FCF Yield % is 3.27%. During the past 13 years, the highest FCF Margin % of Pfizer was 36.74%. The lowest was 8.19%. And the median was 27.38%.

Do dividends reduce FCF?

Secondly, we can say that there exists a positive relationship between dividend and free cash flow and also one related finding that we found is that larger firms pay less dividends than smaller firms.

What is the free cash flow yield of L Oreal?

L'Oreal Co ADR's operated at median free cash flow yield of 2.8% from fiscal years ending December 2019 to 2023. Looking back at the last 5 years, L'Oreal Co ADR's free cash flow yield peaked in December 2019 at 3.1%. L'Oreal Co ADR's free cash flow yield hit its 5-year low in December 2021 of 2.6%.

Why is high FCF good?

An abundant amount of FCF also shows that a company is generating more cash than it needs. Companies can also use their FCF to expand business operations or pursue other investments. So, when measuring a company's growth potential, FCF could serve as a better metric than earnings.

Why use EBITDA over free cash flow?

EBITDA sometimes serves as a better measure for the purposes of comparing the performance of different companies. Free cash flow is unencumbered and may better represent a company's real valuation.

Why use free cash flow over net income?

Management and investors use free cash flow as a measure of a company's financial health. FCF reconciles net income by adjusting for non-cash expenses, changes in working capital, and capital expenditures. Free cash flow can reveal problems in the fundamentals before they arise on the income statement.

Can free cash flow be higher than EBITDA?

3: Limited Comparability: Comparing FCF across industries is challenging due to differences in accounting practices and capital structures. Personally, I value Free Cash Flow 10x higher than EBITDA, but I understand why EBITDA is so widely used.

How do you identify cash rich companies?

Firstly, leveraging the BCG matrix allows us to effectively identify cash cow businesses by assessing growth rates and market share. This analytical tool provides a structured framework for evaluating investment prospects, and guiding informed decision-making.

Why is Amazon free cash flow negative?

The major reason behind Amazon's negative cash flow is its high capital expenditures and reliance on debt. However, this is simply because it reinvests its profit rapidly in innovative products.