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. 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.

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The benefit of PCF over, say P/E is that it is harder to fudge the numbers, making it an increasingly popular ratio.