What Is the Price to Cash Flow Ratio?
The price to cash flow ratio (P/CF) is a valuation multiple that compares a company's share price to the operating cash flow it generates per share. Because cash flow is harder to manipulate than reported earnings, many investors view P/CF as a more reliable companion to the price-to-earnings (P/E) ratio. A lower P/CF can signal that a stock is relatively cheap compared with the cash its operations produce.
How to Use This Calculator
Enter the current price per share and the operating cash flow per share (operating cash flow divided by the number of shares outstanding). The calculator instantly returns the P/CF multiple. You can compute cash flow per share by taking the operating cash flow figure from the cash flow statement and dividing by diluted shares outstanding.
The Formula Explained
$$\text{P/CF} = \frac{\text{Price per Share}}{\text{Operating Cash Flow per Share}}$$ If a company trades at \(\$50\) and generates \(\$5\) of operating cash flow per share, the P/CF is \(10\). This means investors are paying \(\$10\) for every \(\$1\) of operating cash flow. Compare the result against industry peers and historical averages — context matters far more than the raw number.
Worked Example
Suppose a stock trades at \(\$84\) per share and reports \(\$7\) of operating cash flow per share. $$\text{P/CF} = 84 \div 7 = 12$$ A peer trading at the same price with \(\$10\) of cash flow per share would have a P/CF of \(8.4\), making it cheaper on a cash-flow basis.
FAQ
Is a lower P/CF always better? Generally a lower ratio suggests better value, but a very low number can also indicate market pessimism about future growth. Always investigate why.
Why use cash flow instead of earnings? Operating cash flow excludes non-cash charges like depreciation and is less affected by accounting choices, giving a clearer picture of liquidity.
What is a good P/CF ratio? It varies by industry, but many investors look for ratios below \(10\)–\(15\). Compare with sector averages rather than a fixed threshold.
