OCF yield on enterprise value

Valuation

Operating cash flow as a percentage of enterprise value (market cap plus debt minus cash).

Formula

OCF/EV = operating cash flow ÷ (market cap + long-term debt − cash)

Why it matters

Enterprise value is the price of the whole business — what it would cost to buy every share and settle the net debt. Yielding operating cash flow against EV therefore compares companies fairly regardless of how they are financed: a debt-heavy and a cash-rich company at the same market cap are very different purchases, and EV captures that. This is the acquirer's-eye view of valuation, useful for ranking across capital structures.

What good looks like

Above 8% is inexpensive — the whole enterprise is generating cash at a rate well above bond yields. 5–8% is reasonable for quality. Below 4% (EV above ~25x OCF) prices in substantial growth. Because OCF sits above capex, compare capital-intensive companies with extra care: their OCF overstates distributable cash more than an asset-light company's does.

Caveats

Using OCF rather than FCF means capital expenditure is not charged — a utility and a software firm at the same OCF/EV are not equally cheap. Our EV uses long-term debt and balance-sheet cash only, omitting short-term debt, leases, pensions, and minority interests. Undefined when EV is not positive, which can occur for companies whose cash exceeds market cap plus debt.