Free cash flow yield
A share is a claim on a business’s future cash, standing at the very back of the queue — behind the tax authority, the lenders, the suppliers and the payroll. Anything that prices that claim through an accounting figure inherits every choice the accountants made. Earnings can be shaped: depreciation schedules, provisions, one-off adjustments. Cash is the residue after the shaping is done.
That is why the institutional habit is to flip the popular ratio. Instead of asking “how many years of earnings am I paying for” (the P/E), ask “what percentage of my purchase price comes back as cash each year” (the free cash flow yield). Same inputs, different discipline — because a yield invites the comparison that matters: against the risk-free rate. A stock’s cash yield has to clear what a government bond pays plus a premium for the risk of standing last in the queue. When rates rise, that hurdle rises with them, and a valuation that cleared the bar in January can fail it by summer without the company changing at all.
The article below works the full chain — residual claim, hurdle rate, and why the P/E on its own tells you almost nothing.
Where this shows up on ProfitOwl
Value Investing: Why the P/E Ratio Tells You Almost Nothing
Earnings are an accounting construct. Cash is not. Here is the number professionals use instead — and the hurdle it has to clear before a stock is worth owning.