Price-to-cash flow

Price-to-Cash Flow Ratio

The ratio of a company's stock price to the quantity of its cash inflows, minus its cash outflows over a given time, usually a year. The price-to-cash flow is similar to a company's price-earnings ratio, but it does not take into account earnings that have not actually been received. Some analysts prefer the price-to-cash flow ratio because it allows them to assess risk relative to the company's cash on-hand, instead of the cash it ought to have.

Price-to-cash flow.

You find a company's price-to-cash flow ratio by dividing the market price of its stock by its cash receipts minus its cash payments over a given period of time, such as a year.

Some institutional investors prefer price-to-cash flow over price-to-earnings as a gauge of a company's value.

They believe that by focusing on cash flow, they can better assess the risks that may result from the company's use of leverage, or borrowed money.

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