It is a valuation ratio, which relates a financial indicator – free cash flow – and the enterprise value (sum of market capitalization and net financial debt).
Free cash flow is therefore an indicator of the company's ability to generate "excess cash" which it can allocate in different ways: repay its debts, make acquisitions, pay a dividend or buy back its own shares.
The advantage of this indicator is that it starts from cash flow, which is in theory a little less manipulable than earnings per share.
The other advantage is that it does not take into account the financial structure of the company, and allows easy comparisons of companies between sectors of activity or within the same sector, without worrying about the impact of the level of debt.
The higher the free cash flow yield, the more attractive the company is valued.
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