What is free cash flow yield?
In short: free cash flow yield is a company's free cash flow over the last year divided by its market capitalisation, as a percentage. Free cash flow is the cash left after running the business and paying for investment in equipment. A 5% yield means the company generated cash equal to 5% of its market value.
How is free cash flow yield calculated?
Free cash flow yield is calculated in two steps. First, free cash flow is operating cash flow minus capital expenditure — the cash left after running the business and investing in equipment. Second, that figure is divided by the company's market capitalisation and shown as a percentage of what the whole company is worth.
- Free cash flow = operating cash flow − capital expenditure.
- Free cash flow yield = free cash flow ÷ market capitalisation.
| Company | Free cash flow yield (4 October 2026) |
|---|---|
| BHP (BHP.AX) | 3.1% |
| Wesfarmers (WES.AX) | 4.1% |
| Commonwealth Bank (CBA.AX) | not meaningful |
Why use cash instead of profit?
Profit includes accounting estimates; cash is harder to flatter. Free cash flow is the money that can actually pay dividends, buy back shares or repay debt. A company whose profit consistently exceeds its free cash flow deserves a closer look — the Piotroski F-Score checks exactly this.
Where it misleads
- One year can swing widely, with a large investment or a working-capital change.
- Underinvestment flatters it. Cutting necessary spending raises free cash flow today at the cost of tomorrow.
- Not for banks, whose cash flows move with deposits and lending.
How ShareSift uses it
On ShareSift, positive free cash flow earns 5 of 100 points in the ShareSift value score, and a free cash flow yield above 8% sets one of the six hidden-value flags.
Frequently asked questions
What is a good free cash flow yield?
Higher means more cash generated for each dollar of market value. A yield above the return on government bonds suggests the business produces meaningful cash for its price. ShareSift flags yields above 8% as a possible sign of hidden value, though a very high yield can also reflect a market expecting cash flow to fall.
Why can free cash flow be negative for a healthy company?
A company investing heavily — building a mine, a factory or new stores — can spend more on capital projects than its operations bring in, making free cash flow negative for a period. That is different from a business whose operations themselves consume cash. Look at operating cash flow and capital spending separately.
Sources
- ASIC Moneysmart, Choose your investments — the Australian regulator's guide to assessing investments.
- Company figures: Yahoo Finance via ShareSift, as of 4 October 2026. They change daily.
This information is general in nature and does not take into account your objectives, financial situation or needs. ShareSift is not a financial adviser and does not hold an Australian Financial Services Licence. Companies named are examples of how the measure works, not recommendations. Consider whether any information is appropriate for you and seek independent advice before making an investment decision.