Size and price metrics

    Price to cash flow ratio

    P/CF Ratio

    The price to cash flow ratio compares the share price with operating cash flow per share. It uses money actually received instead of booked profit.

    Formula

    P/CF

    P/CF = Share Price ÷ Operating Cash Flow per Share

    Benchmark: Judge it against peers and against what you get for the multiple

    Reading the number

    Earnings can be booked on sales where the payment never arrives, because the buyer went bankrupt or was dishonest. Cash flow reflects money that actually came in. So P/CF sometimes tells the truth when PE flatters.

    There is no universal "good" P/CF. Compare peers, and compare what each multiple buys you. Open each company's investor presentation to list its brands, then ask whether you would rather pay one multiple for one brand basket or a slightly higher multiple for a richer one. If a company does not mention a brand in its presentation, it is probably not a meaningful revenue contributor. Companies always highlight what drives their sales.

    Indian example

    Related ratios

    PE ratioCFO to PAT ratioFree cash flow

    Glossary terms

    Go deeper

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