9/2/2023 0 Comments Free cash flow yield![]() ![]() A straightforward look at the entire S&P 500/sector, regardless of company size or weighting.S&P 500/Sector trailing FCF yield equals weighted S&P 500/sector FCF divided by weighted S&P 500/sector enterprise valueĮach methodology has its pros and cons, as outlined below:.I sum the weighted FCF and weighted enterprise value for each company in the S&P 500/each sector to determine each sector’s weighted FCF and weighted enterprise value.I multiply each company’s free cash flow and enterprise value by its weight. ![]() ![]() Market-weighted drivers – calculated by market-cap-weighting the FCF and enterprise value for the individual companies in each sector in each period. S&P 500/Sector trailing FCF yield equals the sum of the weighted trailing FCF yields for all the companies in the S&P 500/sector.I multiply each company’s trailing FCF yield by its weight.Company weight equals the company’s market cap divided by the market cap of the S&P 500/ its sector.Market-weighted metrics – calculated by market-cap-weighting the trailing FCF yield for the individual companies relative to their sector or the overall S&P 500 in each period. ROIC and its drivers, but I include them here, nonetheless, for comparison: These market-weighted methodologies add more value for ratios that do not include market values, e.g. I call this approach the “Aggregate” methodology.įor additional perspective, I compare the Aggregate method for free cash flow with two other market-weighted methodologies. I derive the metrics above by summing the individual S&P 500/sector constituent values for free cash flow and enterprise value to calculate trailing FCF yield. Each method has its pros and cons, which are detailed in the Appendix.įigure 3 compares these three methods for calculating the Financials sector’s trailing FCF yields.įigure 3: Financials Trailing FCF Yield Methodologies Compared: December 2004 – 11/16/21įinancials FCF Analysis 2004-3Q21 New Constructs, LLCĭisclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.Īppendix: Analyzing Trailing FCF Yield with Different Weighting Methodologies ROIC and its drivers, but I include them here, nonetheless, for comparison. The Aggregate methodology provides a straightforward look at the entire S&P 500/sector, regardless of market cap or index weighting, and matches how S&P Global (SPGI) calculates metrics for the S&P 500.įor additional perspective, I compare the Aggregate method for free cash flow with two other market-weighted methodologies: market-weighted metrics and market-weighted drivers. The November 16, 2021, measurement period uses price data as of that date and incorporates the financial data from 3Q21 10-Qs, as this is the earliest date for which all the 3Q21 10-Qs for the S&P 500 constituents were available. Financials FCF & Enterprise Value 2004-3Q21 New Constructs, LLC ![]()
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