This article will reveal all information about **price to cash flow ratio**.

PCF is one of the best indicator which investors used to know the real value of a company.

So, let’s dive into the ocean of the cash flow world.

## What is price to cash flow ratio

Price to cash flow ratio fis just a simple indicator that measures company stock price value by its operating cash flow.

In simple words, this matrix shows us how much the value of a company shares compared to its operating cash flow per share.

P/CF is an indicator like **price to earning ratio** and price to sales ratio. All of those ratios fit in the same category which are used to find out the position of a company and help to supercharge investors’ decisions.

But the fact is the price to cash flow ratio is better than some of the others, especially the P/E ratio. Reason is net income can easily be manipulated by accounting methods using non cash expenses.

Whereas P/CF just includes cash flow from core operations and adds back D&A. That’s why it is not manipulated by any accounting methods.

## Price to cash flow formula

Price to cash flow formula is very simple and we just need to understand two things.

- Outstanding shares
- Cash flow from operating activities

These two values are enough to find out P/CF. When you divide company outstanding share value by its operating cash flow per share you will get P/CF.

**FORMULA**:

price to cash flow = company’s outstanding shares ÷ operating cash flow per share

Another way is to divide market capitalization by total operating cash flow.

P/CF = market capitalisation ÷ total operating cash flow

We take the average 30 days average firm’s stock value because it may be possible to increase or decrease a little bit more value of share due to some reason (leaked data, fake news etc).

Cash flow from OA can easily be found in the cash flow statements. **Non cash expenses** add back in that value.

Let’s calculate the price to cash flow ratio with an example.

## Price to cash flow ratio example

Assume a company named XYZ outstanding shares are 10 million and per share price is 15$. With that XYZ company’s operating cash flow is 30m$. Now using this data we can calculate price to cash flow ratio.

Operating cash flow per share (OCF/S) = 30m ÷ 10m = 3$

Now use formula:

P/CF = 15 ÷ OCF/S = 15 ÷ 3 = 5

Othe one way is to use XYZ company’s market capitalization as a parameter.

P/CF = (total shares * share price) ÷ operating cash flow = (100m*15) ÷ 300m = 5$

So we got the value of price to cash flow which is 5, it means **investors** are willing to pay 5 dollars for every 1 dollar operating cash flow.

## Price to cash flow vs earning to cash flow

P/CF is a more attractive ratio compared to E/CF ratio because it can’t be manipulated by aggressive accounting methods. On the other hand, companies can easily manipulate E/CF using **depreciation**.

Cash flow statement included parameters which are related to cash inflow and outflow. means it can’t be possible to misdirect data of cash flow. So investors find a more accurate firm’s position and take its financial decision.

One step ahead, you can use price to free cash flow for better results. It neglected non-cash expenses and gave a more accurate number.

## Conclusion

So, it was the full information about price to cash flow ratio.

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