Equity free cash-flow yield

Cash flow is vital because if a business runs out of cash it may go bust even if it is making a decent profit.

Equity free cash-flow is the cash generated each year for shareholders after certain ‘non-discretionary’ expenses have been paid, such as interest on debt, tax and the capital expenditure needed to replace long-term assets as they wear out.

What’s left is often called “free cash flow”, which is then available to be used, perhaps to pay a dividend or expand the business.To turn this into an equity free cash-flow yield you divide it by the firms market capitalisation. The higher the yield the better.

However, as with all ratios this can be meaningless in isolation and should be compared with the previous year and other companies in the same sector.

• See Tim Bennett’s video tutorial: What is a cash-flow statement?

MoneyWeek magazine

Latest issue:

Magazine cover
Heading higher?

Or are house prices set to fall?

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

'Would you rather upset God, or have Him just ignore you?'

In the first of three interviews with Merryn Somerset Webb, Hugh Hendry, manager of the Eclectica Fund, talks about what it takes to be a good hedge fund manager – and how he learned to stop worrying and love central banks.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


26 November 1703: Britain hit by the original 'Great Storm'

Town and country were left devastated, hundreds of ships were lost and thousands died when the worst storm in the history of Britain reached its peak on this day in 1703.