Free Cash Flow
The cash left over after running and maintaining the business — widely considered harder to distort than reported net income.
Free Cash Flow (FCF) is Operating Cash Flow minus Capital Expenditures — the cash generated after maintaining and growing the business. It's often treated as the most reliable measure of a company's true earnings power, precisely because it's harder to manipulate through accounting choices than net income (which can be shaped by depreciation schedules, one-off charges, and other non-cash adjustments).
FCF Yield relates that cash generation back to what you're actually paying for the stock: Free Cash Flow divided by Market Cap. A yield above roughly 3% is generally read as the company generating substantial cash relative to its valuation — and a high FCF yield is one of the more common signals value-oriented investors look for in a potentially undervalued stock.
A yield above 3% means the company generates substantial cash relative to its valuation.
- FCF and net income can diverge meaningfully for perfectly normal reasons (heavy depreciation, working-capital timing) — a persistent, large gap either direction is worth understanding, not automatically distrusting.
- A capital-intensive business (heavy ongoing equipment/infrastructure spending) will structurally show a bigger gap between operating cash flow and free cash flow than an asset-light one — that's the whole point of subtracting CapEx.
- High FCF yield is a value signal, not a growth signal — a fast-growing company reinvesting everything back into the business can have low or even negative FCF while still being a genuinely great business.