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.

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

Recommended

Modern monetary theory (MMT)
Glossary

Modern monetary theory (MMT)

Modern Monetary theory, or MMT, has become popular on the left, both in the UK and abroad. (Wags say that it stands for "magic money tree".) 
21 Sep 2020
Price to sales ratio
Glossary

Price to sales ratio

A company's market cap divided by the company's annual sales (or revenue) gives us the price/sales ratio.
28 Aug 2020
Too embarrassed to ask: what is a p/e ratio?
Too embarrassed to ask

Too embarrassed to ask: what is a p/e ratio?

Find out how to use the price/earnings ratio (p/e ratio for short) – a useful starting place for investors looking to value a company.
26 Aug 2020
Stock split
Glossary

Stock split

A stock split increases the number of a corporation's issued shares by dividing each existing share.
21 Aug 2020

Most Popular

This week’s rally in value stocks is just the beginning
Value investing

This week’s rally in value stocks is just the beginning

The arrival of a vaccine this week saw huge gains in the markets and investors switching out of big-tech growth stocks and into “value” stocks in more…
13 Nov 2020
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
13 Nov 2020
Time for investors to be fearful, not greedy – and sell?
Investment strategy

Time for investors to be fearful, not greedy – and sell?

The Covid-19 crash proved a great investment opportunity. Does the vaccine mean it’s time to sell?
23 Nov 2020