When it comes to long-term growth in the stock market, cash is king. In this article, we’re specifically looking at free cash flow (FCF). This accounts for the cash a company generates after accounting for capital expenditures, reflecting the company’s financial health and its ability to generate cash regularly.
Many investors simply won’t consider investing in companies that have low or negative free cash flow. Taking it one step further, these investors look for companies with a high free cash flow yield. This is a measure of solvency that measures free cash flow per share against the company’s market value per share. A high free cash flow yield indicates a company can easily meet its debt obligations and provide returns to shareholders.
