The table below lists the **Free Cash Flow Yields by GICS sector**. The yields are calculated using *S&P 500 companies*. Even though **Financials** sector seems the be offering clearly the highest FCF Yield, calculating free cash flows for financials companies is tricky and it can be argued that the *metric is not meaningful for banks or insurance companies*. **Utilities** have been generating *negative or barely positive* free cash flows for the past years which should be a cause of concern for investors.

## S&P 500 - Free Cash Flow Yield by Sector

*Purchase GICS Sector and Industry specific Free Cash Flow Yields for the last day of each month since 12/31/2001 (including P/B, P/E & CAPE ratios since 12/31/1979 and EV/EBITDA multiples since 3/31/1995) and do your own industry valuation analysis.*

*Check also the US Comparable Public Companies dataset that provides Free Cash Flow Yields, P/E Ratios, EV/EBITDA Multiples, Growth Rates and Market Caps of all current & past Russell 3000 companies (altogether 8,599 different companies).*

#### How the Free Cash Flow Yield by Industry is calculated?

Free cash flow (FCF) can be defined *as the amount of cash left over to be distributed to the company’s shareholders after the company has paid all its expenses, both operating expenses and capital expenditures*. There are multiple different ways to calculate free cash flow. The simples way is to take **Cash Flows from Operations** and deducting **Investment in operating Capital**. Both of these items can be found from the Cash Flow Statement of a company.

Siblis Research calculates the Free Cash Flow Yield of an industry/sector *by taking the sum of the free cash flows of all S&P 500 companies part of a certain industry/sector and dividing it by the total market capitalization of the companies*. Just by taking the simple average FCF Yield of companies representing a certain industry does not give meaningful results.

#### Free Cash Flow and Financial Companies

In his paper Valuing Financial Service Firms, **Aswath Damodaran** is discussing about the difficulties of estimating cash flows of financial companies. Professor Damodaran is arguing that defining and calculating capital expenditures and working capital for financial service firms is problematic or downright impossible.

By following conventional accounting guidelines, the capital expenditures that financial companies are reporting are usually very small or even negative. Instead of factories and machinery, financial companies invest primarily in intangible assets and their investments are usually categorized as operating expenses.

A bank’s balance sheet consists of mostly current assets and current liabilities. The ratio of assets and liabilities normally fluctuates a lot, meaning that the changes in working capital can be huge.

These issues mean that using the normal formula to calculate free cash flow yields can result **to an extremely high or low number for a single time period.**