What Is Price to Free Cashflow?

The key question when valuing a company is what is the "price to free cashflow" ratio, and what does it mean for you? This ratio measures a company's liquidity by comparing its total cash to its outstanding obligations, including debt, capital expenditures, and dividends. When this number is low, the company is likely to be a good investment. A high ratio indicates that a company is overvalued and could be a risk to own.

Price to Free Cashflow

The ratio shows the amount of cash a company generates every year. It uses the same calculation as EPS, except instead of looking at net income, the ratio takes the amount of cash generated by the company in the past 12 months and divides that by the current stock price. The price to free cashflow ratio is useful in determining whether a stock is overvalued or not. Using this ratio, investors can determine whether a company is overvalued or undervalued and whether to invest their money.

The price to free cashflow ratio helps determine the value of a company, as a higher free cash flow should translate into a higher stock price. It is a method for evaluating the value of a company, and it can help you decide whether a stock is a good investment. When screening for companies with low price-to-free-cash-flow ratios, look for firms that are priced well below the industry median and five-year average.