Why net cash raises your real FCF yield

When a company holds more cash than debt, its real free-cash-flow yield is higher than the headline suggests, because you are effectively buying the operating business for its market value minus that surplus cash. The right denominator is enterprise value — market capitalisation plus debt, minus cash — not the market cap. Criteo S.A. (NASDAQ: CRTO) held about $389M of cash and marketable securities against no financial debt at 31 December 2025 — net cash worth more than 40% of its roughly $0.9B market capitalisation as of 19 August 2026 — which turns a headline free-cash-flow yield near 23% into about 41% on the operating business itself. The cash on the balance sheet is a large discount on the price of the thing you actually want to own.

Why the balance sheet changes the price

Two companies can trade on the same headline free-cash-flow yield and not be equally cheap, because the yield on market cap ignores what the company owns and owes before you even value the business. When you buy the whole company, you also get its cash and you inherit its debt, so the real price of the operating business is the market cap plus the debt, less the cash. A company sitting on net cash is quietly cheaper than its market cap implies; a company carrying net debt is quietly more expensive, and riskier with it. Ignoring the balance sheet is one of the most common ways a screen makes a stock look more, or less, attractive than it is.

Why measure free cash flow against enterprise value?

You measure free cash flow against enterprise value because enterprise value is the actual cost of owning the cash flows. Enterprise value is market capitalisation plus debt, minus cash — the price of the operating business once the balance sheet is settled. When a company holds net cash, that cash subtracts from the price, so enterprise value falls below the market cap and the same free cash flow becomes a higher yield.

Criteo is a clean example, because it carries no financial debt at all. Its roughly $211M of FY25 free cash flow is about 23% against its ~$0.9B market cap, but its ~$389M of cash and marketable securities pulls enterprise value down near $0.5B — so the same free cash flow is roughly a 41% yield on the operating business. Nothing about Criteo's cash generation changes between those two numbers; only the price you attribute to it does.

How big is the effect?

The size of the effect depends entirely on how large the net cash is relative to the price. When a company holds only a sliver of net cash — a few percent of its market cap — enterprise value barely moves and the two yields are almost the same. When net cash is a big fraction of the price, the gap becomes dramatic.

Criteo sits at the dramatic end: its ~$389M of net cash is more than 40% of its ~$0.9B market cap, so measuring free cash flow against enterprise value nearly doubles the yield — from about 23% to roughly 41%. You are effectively paying about $0.5B for a business that throws off ~$211M a year, not the $0.9B the market-cap headline implies, because more than 40 cents of every dollar of market cap is cash sitting on the balance sheet. The rule is simple: the more of the price that is held in cash, the more the headline yield understates what you are really earning.

What net cash gives you beyond a higher yield

Net cash also buys optionality and removes a risk, both of which matter to owner returns. Cash on the balance sheet can fund buybacks, dividends or an acquisition without touching the operating cash flow — a second source of capital return that a business with net debt does not have. Criteo, a position in the portfolio, shows it directly: it repurchased about $152M of its own stock in FY25, funded from the balance sheet, while carrying no borrowings to refinance.

That last point connects straight back to the definition of owner free cash flow: required debt reduction is one of the things you subtract to get there, so a company with net cash subtracts nothing and more of its cash stays discretionary. Net debt runs the whole logic in reverse — a higher enterprise value, a lower real yield, and a slice of free cash flow spoken for by the lenders.

The counter-argument

A higher yield on enterprise value is not the same as a bargain, and net cash can flatter the picture in two ways. First, not all cash is genuinely surplus: some is working capital a business needs to operate, some is held for regulatory reasons, and some would be taxed if repatriated — only cash that could actually be distributed should be netted against the price. Second, and more important for a company like Criteo, a high free-cash-flow yield usually exists because the market doubts the cash will last.

Criteo trades on a double-digit yield, with net cash worth much of its market value, largely because investors question the durability of its advertising cash flows as the industry moves away from third-party cookies. Net cash makes the yield look larger, but it says nothing about whether the free cash flow behind it is stable — that is a separate question, and the one that actually decides the outcome. A cheap-looking yield propped up by a strong balance sheet is still only as good as the business underneath it.

What would make this wrong

The adjustment is wrong whenever the "cash" is not really available to owners — trapped by operations, regulation or repatriation tax — in which case netting it overstates the yield and understates the true price. The test is behavioural as much as accounting: does the company actually use its net cash for returns, as Criteo does through buybacks, or does it simply let it accumulate? And the whole advantage reverses if net cash becomes net debt — a large debt-funded acquisition would raise the enterprise value, lower the real yield, and put a claim on the free cash flow that a double-digit owner-FCF yield depends on staying discretionary.