Classic investor frameworks · Return decomposition
Terry Smith · FCF yield plus growth
Adds current free-cash-flow yield to sustainable medium-term growth to decompose long-run return drivers.
- Guide level
- Practical
- Output
- Return decomposition
Core formula
Indicative long-run return ≈ current FCF yield + sustainable medium-term growthHow to interpret it
Adds current free-cash-flow yield to sustainable medium-term growth to decompose long-run return drivers.
The output should be read as a scenario or decision aid, not as a guaranteed price target. Compare it with at least one method based on different economic assumptions.
Practical workflow
- Normalize the latest public financial and operating data.
- Choose assumptions that match the company's economics and accounting structure.
- Calculate conservative, base and optimistic cases where the method permits.
- Compare the result with market pricing and an independent valuation method.
- Document the assumptions that drive the largest changes in value.
Key limitation
It omits valuation multiple changes and is a return decomposition, not a precise target-price model.
How Stockinsky uses it
Stockinsky uses this framework only when the company type and available data support it. Professional valuations expose assumptions, sources and warnings instead of presenting false precision.