Price to Cash Flow Ratio

Price to Cash Flow Ratio provides the investor with an opportunity to evaluate the profitability of his investments. Indicator describes the amount of cash flow a company can generate.

Alternative names of Price to Cash Flow Ratio:

  • P/CF
  • Price to Cash Flow Ratio.

What Does Price to Cash Flow Ratio Show?

Price to Cash Flow Ratio represents the ratio of the company’s market value to its cash flow. It assesses the enterprise’s investment attractiveness in the stock market. The coefficient is calculated dividing the market capitalization by the operating cash flow. This is the same as the ratio of the current price of a single share to the operating cash flow per share.

Formula of Price to Cash Flow Ratio

Most often, the P/CF ratio is calculated according to the following formula:

P/CF = Market value of the company / Operating cash flow

P/CF = Price per share / Operating cash flow per share

Normative Value of Price to Cash Flow Ratio

A lower ratio of price to cash flow is the best one. A high value of the indicator shows the company trades at high prices on the stock market, but generates an insufficient amount of cash flow.