Price to cash flow ratio
The price to cash flow ratio (PCF) is a measure of the market's expectation of a firm's future health.
The price to cash flow ratio (PCF) is a measure of the market's expectation of a firm's future health. It is calculated by dividing the share price by the cash flow per share.
Like the price to earnings ratio (p/e), the PCF ratio is one that investors look at to calculate the relative cost of a business or a market. It represents the number of years of free cash flow needed to recoup the price of shares.
The idea is notional, as only a dividend rather than the full cash flow will ever be returned to investors - but it still gives an easy comparison with other companies or market, regardless of size. The future (forecast) cash flow can also be used to calculate the PCF.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The benefit of PCF over, say P/E is that it is harder to fudge the numbers, making it an increasingly popular ratio.
-
IHT receipts hit record high – is it set to rise further?
HMRC is set to collect a historic number of IHT receipts between April 2023 and March 2024. We look at how you can stop the taxman eating into your inheritance.
By Vaishali Varu Published
-
Adidas, Nike or Jordans - could collectable trainers make you rich?
The right pair of trainers can fetch six figures. Here's how you can start collecting vintage Adidas, Nike or Jordans now
By Chris Carter Published