1. What is Price To Cash Flow Ratio?

Price To Cash Flow Ratio is a common method used to assess the market valuation of publicly-traded companies, or more specifically, to decide if a company is undervalued or overvalued.

2. How Does the Calculator Work?

The calculator uses the Price To Cash Flow Ratio formula:

Where:

• Current Share Price — refers to the current market price of a single share of a company's stock and it represents the value that investors are willing to pay for ownership in that company.
• Operating Cash Flow — refers to the amount of cash generated by the regular operating activities of a business within a specific time period.

Explanation: This formula calculates how much investors are paying for each dollar of operating cash flow generated by the company.

3. Importance of Price To Cash Flow Ratio

Details: The Price To Cash Flow Ratio is important for investors as it helps assess a company's valuation relative to its cash generation ability, which is often considered a more reliable metric than earnings.

4. Using the Calculator

Tips: Enter the current share price and operating cash flow in dollars. Both values must be positive numbers to calculate a valid ratio.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Price To Cash Flow Ratio?
A: Generally, a lower ratio may indicate that a company is undervalued, while a higher ratio may suggest overvaluation. However, this varies by industry.

Q2: How does Price To Cash Flow Ratio differ from P/E ratio?
A: While P/E ratio uses earnings, Price To Cash Flow Ratio uses operating cash flow, which is less susceptible to accounting manipulations.

Q3: Why is operating cash flow used instead of total cash flow?
A: Operating cash flow represents cash generated from core business operations, providing a better measure of a company's ongoing financial health.

Q4: Can Price To Cash Flow Ratio be negative?
A: No, since both current share price and operating cash flow should be positive values, the ratio should always be positive.

Q5: How often should investors check this ratio?
A: Investors should monitor this ratio regularly, especially when considering new investments or evaluating existing holdings during earnings seasons.