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Price to cash flow ratio definition

Description

Price/cash flow ratio shows the amount of operating cash flow per one dollar of share. It is similar to P/E ratio. The only difference is that when calculating the P/E ratio, net income (earnings) are used instead of the operating cash flow. Data to calculate this ratio is collected from the statement of market bulletin and cash flow statement.

Same as with the P/E ratio, it is a very important ratio for the company’s investors. Just here, calculating price/cash flow ratio non-cash items are eliminated (amortization and etc.).

Norms and limitations

In general, there are no norms for this ratio.

It is recommended to compare this ratio to those of the companies, working within the same industry.

Formula

Share price shows the current market price of the share.

Operating cash flow per share equals operating cash flow divided from share outstanding.