![]() ![]() Mitigates the disproportionate impact of outlier results from one company on the overall results.Accounts for a firm’s market cap relative to the S&P 500/sector and weights its free cash flow and enterprise value accordingly.Vulnerable to outlier results disproportionately impacting the overall trailing FCF yield.Accounts for a firm’s market cap relative to the S&P 500/sector and weights its metrics accordingly. ![]() Also susceptible to outliers in any one period. ![]() Vulnerable to impact of companies entering/exiting the group of companies, which could unduly affect aggregate values.Matches how S&P Global calculates metrics for the S&P 500.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. 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. I call this approach the “Aggregate” methodology. 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. The March 11, 2022, measurement period uses price data as of that date and incorporates the financial data from 2021 10-Ks, as this is the earliest date for which all the 2021 10-Ks for the S&P 500 constituents were available.ĭisclosure: 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 S&P 500 FCF Yield Analysis Industrials 2004-2021 New Constructs, LLC ![]()
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