Price to cash flow ratio

Price to cash flow compares a company's market value with the cash its operations bring in, showing how many years of current operating cash flow the price represents.

The formula is:

Or on a per share basis, share price divided by operating cash flow per share.

Because operating cash flow adds back non-cash charges like depreciation, this ratio is harder to distort with accounting choices than the price to earnings ratio. It is useful for capital heavy businesses where large depreciation charges make earnings look small next to the cash the business generates.

Operating cash flow comes before capital spending, so a low P/CF can flatter a company that must reinvest most of its cash just to keep running. Price to free cash flow, which subtracts that spending, gives the stricter view, and comparing the two shows how much of the cash the business can keep.