FAQs
Free cash flow, or FCF, is the money that is left over after a business pays its operating expenses (OpEx), such as mortgage or rent, payroll, property taxes and inventory costs — and capital expenditures (CapEx).
What is the difference between free cash flow and free cash flow yield? ›
Free cash flow yield is a financial solvency ratio that compares the free cash flow per share a company is expected to earn against its market value per share. The ratio is calculated by taking the free cash flow per share divided by the current share price.
What does FCF yield tell you? ›
Free cash flow yield is a valuable metric for both financial and market analysts, and especially for investors. It acts as an indicator of how capable a company can repay and make good on all of its obligations. In essence, it is a solid indicator of how financially stable a company is.
What is a good FCF for a stock? ›
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 free cash flow for dummies? ›
You figure free cash flow by subtracting money spent for capital expenditures, which is money to purchase or improve assets, and money paid out in dividends from net cash provided by operating activities.
Does Warren Buffett use free cash flow? ›
First, he studies what he refers to as "owner's earnings." This is essentially the cash flow available to shareholders, technically known as free cash flow-to-equity (FCFE). Buffett defines this metric as net income plus depreciation, minus any capital expenditures (CAPX) and working capital (W/C) costs.
What is a good price to free cash flow ratio? ›
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 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.
Do you want a high or low FCF? ›
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 a healthy price to cash flow? ›
What is a good price to cash flow ratio? A good price to cash flow ratio is anything below 10. The lower the number, the better the value of the stock. This is because a lower ratio indicates that the company is undervalued with respect to its cash flows.
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%.
Which company has the highest cash flow? ›
Companies with free cash flow
S.No. | Name | CMP Rs. |
---|
1. | Athena Global | 117.53 |
2. | Maha Rashtra Apx | 174.67 |
3. | Franklin Indust. | 6.29 |
4. | Infronics Sys. | 56.65 |
23 more rows
Is free cash flow the same as profit? ›
Indication: Cash flow shows how much money moves in and out of your business, while profit illustrates how much money is left over after you've paid all your expenses.
Is free cash flow good or bad? ›
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 calculate FCF? ›
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 is a good free cash flow margin? ›
Well, while there's no one-size-fits-all ratio that your business should be aiming for – mainly because there are significant variations between industries – a higher cash flow margin is usually better. A cash flow margin ratio of 60% is very good, indicating that Company A has a high level of profitability.