Price to free cash flow ratio
Also known as: P/FCF, price to FCF
A ratio compares the price the market puts on a to something the company produces, its , its , or its cash flow. It tells you how expensive a is relative to that measure, not just whether the share price is high or low in absolute terms.
Price to free cash flow divides by , showing how many years of current it would take to earn back the price paid for the , assuming stayed flat. It plays the same role as the , but uses instead of , which strips out non-cash accounting items like . also adds back , which is a real cost to even though no cash leaves, so P/FCF can flatter companies that pay heavily in .
The formula is:
/ This makes it useful for comparing companies whose reported are distorted by heavy non-cash charges, or for checking whether a company's profits are showing up as cash. A high P/FCF, like a high , means investors are paying a steep premium for today's cash generation, on the expectation that it grows substantially from here.