FCF yield: drag market cap
Drag the bar to set market cap. Free cash flow stays put, so the yield moves only because the cap does. Cut the cap and the yield rises. Five percent is the cash as one twentieth of the cap. The cash did not grow. The denominator shrank.
FCF yield
5.0%
Market cap
$1,100,000,000
Cut the cap and the yield rises. Free cash flow stays $55,000,000. Illustrative arithmetic, not a screen or advice.
Free cash flow
$55,000,000, held still so only the denominator moves.
In short
- Drag the bar up for a higher yield, which is a smaller market cap.
- Read the rate as percentage points: 5, not 0.05.
- Watch free cash flow stay put. Only the denominator is moving.
- Focus the handle and use the arrow keys to step market cap.
Cash over the equity cap
FCF yield is unlevered free cash flow over market cap. How FCF yield works is that identity, with the FCF yield calculator under the answer.
How free cash flow works owns the cash bridge. FCF yield against earnings yield is cash against profit.
A higher yield can be a smaller cap
Halve the cap and the yield doubles. The cash line did not move. Distressed names print a huge yield when the price falls faster than trailing cash.
What the drag will not do
It will not rebuild the FCF bridge, and it will not switch the denominator to enterprise value. It is educational material, not financial advice.
Common questions
Why does dragging up raise the yield?
Because the bar is the yield. Higher yield is a smaller cap on fixed cash. Arrow up steps the cap down so the bar and the keys agree.
Is five percent a coupon?
No. It is unlevered cash over the equity cap on the teaching sheet. It is educational material, not a screen.
Is this earnings yield?
No. Earnings yield is profit over price. This picture is cash over the cap.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.