Price to Free Cash Flow

AAA

DEFINITION of 'Price to Free Cash Flow'

A valuation metric that compares a company's market price to its level of annual free cash flow. This is similar to the valuation measure of price-to-cash flow but uses the stricter measure of free cash flow, which reduces operating cash flow by capital expenditures. This is done as companies need to maintain or expand their asset bases (capital expenditure) to either continue growing or maintain the current levels of free cash flow.

Price to Free Cash Flow

INVESTOPEDIA EXPLAINS 'Price to Free Cash Flow'

In general, the higher this measure, the more expensive the company is considered. But it is useful also to compare to the company's past levels of price-to-free-cash flow along with comparing the average within its industry. For example, if a company generated $200 million in operating cash flow and spent $50 million on capital expenditure, then it generated free cash flow of $150 million. If the company currently has a market cap of $5 billion, the company trades at 33 times free cash flow ($5 billion/$150 million).

VIDEO

RELATED TERMS
  1. Price-To-Cash-Flow Ratio

    The ratio of a stock’s price to its cash flow per share. The ...
  2. Capital Expenditure - CAPEX

    Funds used by a company to acquire or upgrade physical assets ...
  3. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash ...
  4. Operating Cash Flow - OCF

    In accounting, a measure of the amount of cash generated by a ...
  5. Insurance Regulatory Information ...

    A collection of databases and tools used to analyze the financial ...
  6. Book Value Reduction

    Reducing the value at which an asset is carried on the books ...
Related Articles
  1. The Essentials Of Corporate Cash Flow ...
    Retirement

    The Essentials Of Corporate Cash Flow ...

  2. Free Cash Flow: Free, But Not Always ...
    Markets

    Free Cash Flow: Free, But Not Always ...

  3. Introduction To Fundamental Analysis
    Markets

    Introduction To Fundamental Analysis

  4. What is the difference between enterprise ...
    Investing

    What is the difference between enterprise ...

Hot Definitions
  1. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  2. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  3. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  6. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
Trading Center