Some investors regard free cash flow as a more accurate representation of the returns shareholders receive from owning a business. It's essentially the money left over from operations after accounting for all the firm's obligations. The company has the possibility to distribute this money to its shareholders in the form of an increase in cash dividends or for buying back shares in the open market. It can also be used to pay down debt or it can be left in the bank account.
Some value investors prefer using cash flow ratios to find bargain-priced stocks because cash flow is traditionally more difficult to manipulate than earnings.
FCF Yield is calculated as follows: