DEFINITION of 'PriceToCashFlow Ratio'
The ratio of a stock’s price to its cash flow per share. The pricetocashflow ratio is an indicator of a stock’s valuation. Although there is no single figure to indicate an optimal pricetocashflow ratio, a ratio in the low single digits may indicate the stock is undervalued, while a higher ratio may suggest potential overvaluation. The ratio takes into consideration a stock’s operating cash flow, which adds noncash earnings such as depreciation and amortization to net income. It is especially useful for valuing stocks that have positive cash flow but are not profitable because of large noncash charges.
Calculated as:
INVESTOPEDIA EXPLAINS 'PriceToCashFlow Ratio'
For example, consider a company with a share price of $10 and 100 million shares outstanding. The company has net income of $125 million in a given year, and operating cash flow of $200 million. It therefore has cash flow per share of $2 (i.e. $200 million / 100 million shares) and EPS of $1.25 ($125 million / 100 million shares). The company therefore has a pricetocashflow ratio of 5 (i.e. share price of $10 / cash flow per share of $2) and a Price / Earnings ratio of 8 ($10 / $1.25).
An alternate way of calculating pricetocash flow is by taking the ratio of a company’s market capitalization to its operating cash flow. From the above example, it follows that the ratio can also be calculated as = $1,000 million / $200 million = 5.
The optimal level of this ratio depends on the sector in which a company operates, and its stage of maturity. A new and rapidly growing technology company, for instance, may trade at a much higher ratio than a utility that has been in business for decades. This is because although the technology company may only be marginally profitable, investors will be willing to give it a higher valuation because of its growth prospects. The utility, on the other hand, has stable cash flows but few growth prospects, and as a result trades at a lower valuation.
The PricetoFree Cash Flow ratio, which takes into account free cash flow – or cash flow minus capital expenditures – is a more rigorous measure than the pricetocashflow ratio.

Payout Ratio
The proportion of earnings paid out as dividends to shareholders, ... 
Registration Right
A right which entitles an investor who owns restricted stock ... 
Retention Ratio
The proportion of earnings kept back in the business as retained ... 
CrossSectional Analysis
A type of analysis an investor, analyst or portfolio manager ... 
Cash Flow Per Share
A measure of a firm's financial strength, calculated as: Cash ... 
PriceEarnings Ratio  P/E Ratio
A valuation ratio of a company's current share price compared ...

Investing Basics
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. 
Fundamental Analysis
Can Investors Trust The P/E Ratio?
The P/E ratio is one of the most popular stock market ratios, but it has some serious flaws that investors should know about. 
Fundamental Analysis
Cash Flow Statement: Reviewing The Cash Flow From Operations
A company's ability to consistently generate positive cash flows from its daily business operations is highly valued by investors. Operating cash flow can uncover a company's true profitability ... 
Fundamental Analysis
Financial Analysis: Solvency Vs. Liquidity Ratios
Solvency and liquidity are equally important for a company's financial health. A number of financial ratios are used to measure a company’s liquidity and solvency, and an investor should use ... 
Fundamental Analysis
An Introduction To Coverage Ratios
Interest coverage ratios help determine a company's ability to pay down its debt. 
Retirement
Pay Attention To Your Fund’s Expense Ratio
Despite trends indicating an overall decrease in fees across many fund categories, investors should still pay attention to expense ratios: even small differences in fees can have a significant ... 
Investing Basics
Introduction To Investment Diversification
Reducing risk and increasing returns in your portfolio is all about finding the right balance. 
Markets
Operating Cash Flow: Better Than Net Income?
Differences between accrual accounting and cash flows show why net income is easier to manipulate. 
Bonds & Fixed Income
Does International Investing Really Offer Diversification?
Historically, international investing has worked out well for investors, but this may no longer be the case. 
Active Trading
Unearth Profits In Oil Exploration And Production
Drill down into financial statements to tap into the right companies and let returns flow.