Cash flow yield
In the context of an LBO, is levered free cash flow yield calculated as LFCF / equity purchase price or LFCF / equity from sources?
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Depends on what you're trying to represent. If it's in the context of how efficient the company is at a business / operations level, you'd want FCF/TEV. If you just want to see how your investment is doing, then FCF/Sponsor Equity. However, I'd lean towards FCF/TEV since most FCF is being used to pay off debt anyways and Sponsor Equity changes from deal to deal based on financing / leverage choices.
Also worth looking at FCF/Revenue which gives you an idea of how much of your revenue is converted into FCF. For a typical LBO candidate, I think you want mature/stable companies hitting >10% FCF yield on revenue and 2-4% FCF/TEV (implying 2.5-5x TEV/Revenue multiple) but it obviously depends by industry.
@ whoever threw MS: care to explain why?
for calculating this figure, do you divide it always by the entry equity value? or in each year?
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