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Comparing Free Cash Flow Yield with Government Bonds
A key factor in evaluating a company is comparing its free cash flow yield with the yield on government bonds. If the free cash flow yield is the same as or higher than government bonds, it indicates a potentially sound investment for the long term. This is because while government bond yields remain static, free cash flow from companies is likely to increase over time. Additionally, estimating the growth rate of free cash flow over a few years is essential in determining potential total returns.