Price-To-Cash-Flow-Ratio is a term that indicates the degree of cash flow valuation of the enterprise in the securities market. It is derived from the P/E - Price Earnings Ratio, in which the profit is replaced by cash flow. Unlike P/E, the ratio isn’t affected by the chosen depreciation methods, making it suitable for geographic comparison.
Calculation:
Price-To-Cash-Flow-Ratio = Share market price / Cash flow per share
The indicator belongs to indicators based on cash flow.
Use of the indicator in practice: In the enterprise it is used by CFO in financial analysis to analyze ratios. Indicators based on cash flow try to catch warning signs of potential credit problems and assess internal financial potential of the company.
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