Price/Cash Flow (P/CF) – The smaller the numerical ratio the better.
This is one of the Valuation Ratios which lets you know if a stock is a good bargain buy. It helps answer the question “Is the company stock undervalued or overvalued?” Be careful to use other performance metrics along with any valuation ratio since a company may be undervalued due to poor performance.
Calculate this ratio using the below equation. Values in the equation can be acquired from the Cash Flow Statement, Income Statement, and Daily stock price reported.
Equation:
P/CF = (Market Price per Share) ÷ (Cash Flow per Share)
Where: CF per Share = (Reported Net Cash) ÷ (Average No. of Common Shares)
NOTE-1: P/CF Ratio provides a smaller number than P/E because CF does not include Income Statement reductions in cash due to depreciation and amortization.