Let's take the example of XYZ Corporation, a large company.Īs we already know, to calculate P/CF, we need two things. P/CF ratio = price of one share / operating cash flow per share Price-to-Cash Flow Ratio Example Now that we have all of the elements to calculate the P/CF ratio using the price-per-share method, we can use this formula: Operating cash flow per share = (cash from operations)/ (total common shares outstanding) With these elements, we can divide the cash from operations by the total shares outstanding to find operating cash flow per share. Total Diluted Shares Outstanding: the number of shares in circulation overall, considering the impact of potentially dilutive products like options and convertible debt. Cash from Operations: Annual operating cash flow for the businessĢ. There are two financial criteria necessary to determine operating cash flow per share.ġ. To find operating cash flow per share in the second method, you simply divide operating cash flow by the total shares outstanding. Operating cash flow is typically listed as 'Net cash provided by operating activities.' In the first method, knowing that operating cash flow can be found on a company’s cash flow statement is important. This ensures an accurate value in the numerator of this ratio calculation. When using the second method of calculating the P/CF ratio on a per-share basis, it is best to use 30 or 60-day price averages to avoid price volatility.Ī 30 or 60-day average price will capture a more stable stock price that is not distorted by erratic market movements, hence reducing volatility. Divide the stock price per share by the operating cash flow per share. Use the most recent year to determine the P/CF ratio for relevancy and accuracy. To find the P/CF, we divide the company's total market capitalization by its total operating cash flow. The operating cash flow of a corporation, or the denominator of the P/CF ratio, shows whether or not the company generates enough money to fund and grow its operations.Įssentially, there are two ways to determine the P/CF ratio. The share price represents the numerator of the P/CF ratio, and it shows the company's current market value based on the most recently traded stock. In other words, it can show if a company is fairly priced, underpriced, or overpriced in the financial markets. This ratio shows whether a company's market valuation is reasonable. In simple terms, the P/CF ratio shows the amount an investor is ready to pay for the cash flow the company generates. The price-to-cash flow ratio is a way to evaluate a company by comparing its share price to its operating cash flow - a crucial component of its balance sheet.īased on a company’s price in the market, it’s commonly used when investing in the stock market since it is a quick way to check the value of a company’s stock share price based on its cash flows.

Price to cash flow