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Price to Cash Flow (P/CF) Ratio Calculator

Written by:
PK

On this page is a price to cash flow ratio calculator or P/CF calculator. Enter the current price per share of a company plus its cash flow per share (either free cash flow or operating cash flow) to compute its price to cash flow ratio.

Price to Cash Flow Ratio Calculator

What is the Price to Cash Flow ratio?

The price to cash flow ratio compares a company's current price per share with the amount of cash flow the company generates per year. As companies are valued on the cash flows they produce over time, paying less of a multiple per amount of cash flow is – all else equal – better than paying more.

Your measure of cash flow also matters. For example, you can use operating cash flow (alternatively, cash flow from operations) right off the balance sheet. Most investors use some computation of free cash flow, a non-GAAP metric that adds back capital expenditure spending. Other forms of free cash flow add back debt payments (or sometimes just debt principle payments – crediting it as free cash flow to equity, or FCFE) or make other adjustments.

Additionally, you can compute unlevered or levered cash flows. Unlevered cash flows are generally the input in DCF analyses or ratios, and represent free cash flows to all capital sources, debt or equity. Levered free cash flows only calculate post-debt cash flows, or cash flows available for equity investors.

The inverse of the price to cash flow ratio is the cash flow yield. Cash flow yield is generally expressed as a percentage, and roughly allows you to compare cash flow – if it were paid out 100% as dividends – to other yields such as the dividend yield or various interest rates.

Price to Cash Flow Ratio Formula

The price to cash flow value formula is:

price\ to\ cash flow\ ratio=\frac{price\ per\ share}{cash\ flow\ per\ share}

Where:

  • Price per share - the current trading price of a share of a company, or alternatively, the total market cap.
  • Cash flow per share - one of the various measures of cash flow, including operating cash flow, free cash flow, variants on free cash flow, and unlevered and levered free cash flow.

Limitations on Price to Cash Flow 

While choosing your measure of cash flow carefully will account for the cost of debt, using just the current equity price doesn't tell the true value of a firm. Enterprise value accounts for debt in the equity stack by adding debt and liabilities to market capitalization and subtracting out cash.

Cash flow is an inappropriate measure for many early-stage or growth companies, where positive cash flows may be well into the future. Instead, these companies are focused on growth, expansion, or market dominance and won't show well with any sort of price to cash flow (or price to earnings) measure.

For very early companies (especially high-growth startups that are still privately traded), the price to gross profit ratio or price to revenue ratio may be superior. Of course, for the very earliest companies, you have little more than the team, the idea, and the potential market to go on – no ratio will help you there... good luck!

      

PK

PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK is in his mid-30s and works and lives in the Bay Area with his wife, two kids, and dog.

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