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Free Cash Flow Yield Plus Growth. Free cash flow yield (fcfy) we can take this relevant information and produce a ratio that is one of the most useful metrics in stock analysis: Free cash flow yield = free cash to the firm / market cap.
Free Cash Flow Yield Explained from www.peakframeworks.com
The basic idea is that you can pay more for a company that’s growing its cash flows than for one that’s not growing its cash flows. This strategy also worked best for medium sized companies but what is noticeable is that the returns are not linear (steadily. This is why the stock market has had an average rate of return of about 9%.
Assuming an inflation rate of 2.5%, the forward rate of return on an investment in the s&p 500 is about 6.5% today (2.5% free cash flow yield plus 1.5% real growth plus 2.5% inflation).
The ratio is calculated by taking. Assuming an inflation rate of 2.5%, the forward rate of return on an investment in the s&p 500 is about 6.5% today (2.5% free cash flow yield plus 1.5% real growth plus 2.5% inflation). It is a good indicator to determine the investor’s payback period. The point of this calculation is to see if the operating cash flow trend is predictable in a business.
