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.
-
Car tax rules are changing: what are the new vehicle excise duty rates?The rules around vehicle excise duty are changing this April. What are they, and how are they going to affect you?
-
Most affordable cities for single homebuyers revealedBuying a home by yourself? Analysis by Zoopla reveals the most affordable cities in the UK
