What Is the Liability Adjusted Cash Flow Yield?

Liability Adjusted Cash Flow Yield (LACFY) is a fundamental analysis calculation that compares a company's long-term free cash flow (FCF) to its outstanding 澳洲幸运5开奖号码历史查询:liabilities over the same period to produce a yield value. Liability adjusted cash flow yield can be used to determine how long it will take for a buyout to become profitable or how a company is valued. Because it is a yield (ratio), it can be used to compare between different firms, or analyze the same firm across time. 澳洲幸运5开奖号码历史查询:Free cash flow yield gives investors another way to assess the value of a company that is comparable to the likes of the 澳洲幸运5开奖号码历史查询:price-earnings (P/E) ratio. Since this measure uses free cash flow, the free cash flow yield provides a better measure of a company's p💧erformance. Since it is adju𒀰sted for liabilities, the LACFY gives an even better understanding of the true workings of a firm's finances.

Despite its appeal, liability adjusted cash flow yield is not commonly ♕used in company valuation. 🗹To see whether an investment is worthwhile, an analyst may look at ten years worth of data in a LACFY calculation and compare that to the yield on a 10 year Treasury note. The smaller the difference between LACFY and the Treasury yield, the less desirable an investment is.

Liability Adjusted♏ Cash Flow Yield i💎s calculated as follows:

10-Year Average Free Cash Flow / (((Outstanding Shares + Options + Warrants) x (Per Share Price) + (Liabilities)) - (Current Assets - Inventory))

Understanding the Liability Adjusted Cash Flow Yield (♚LACFY)

Liability-adjusted cash flow yield (LACFY) is a formula for valuing common stocks, created by stock market commentator John DeFeo and inspired by Benjamin Graham and David Dodd. It is thought of as a formula that will provide the true ownership yield of a company with respect to modern accounting standards. The formula does have some limitations - it won't protect you from overvaluing a company with a large cash hoard overseas or an artificially-low tax rate (two accounting anomalies that often run hand-in-hand). Nor will it give you a fair valuation for a fledgling company with dramatic earnings growth (although, you can always modify the numerator to a best-guess cash flow figure).

When the financial crisis struck in 2009, companies that paid a 澳洲幸运5开奖号码历史查询:dividend yield more than their LACFY seemed to be cutting their dividends with greater regularity than those that did not (examples include General Electric and Pfizer). Debt-laden companies with large liabilities had little recourse if they could not support their dividend with free cash flow and/or couldn't roll-over debt in a drying credit market. Based on this observation, DeFeo created a corollary pass/fail formula called the Dividend Acid Test:
Pass = Dividend yield less than LACFY
Fail = Dividend yield greater than LACF

An additional test was imposed relating this ratio to the yield from risk-free 澳洲幸运5开奖号码历史查询:Treasury notes:

LACFY is greater than Dividend Yield is greater than 10-Year Treasury Yield.