Price/cash flow ratio

A measure of the market's expectations of a firm's future financial health. Since this measure deals with cash flow, the effects of depreciation and other non-cash factors are removed. Similar to the price-earnings ratio, this measures provides an indication of relative value.

Calculated by:

Investopedia Says:
Since accounting laws on depreciation vary across jurisdictions, the price to cash flow ratio can allow investors to assess foreign companies from the same industry (ex. mining industry) with a bit more ease.

Related Links:
Differences between accrual accounting and cash flows show why net income is easier to manipulate. Operating Cash Flow: Better Than Net Income?
Make an informed decision about your investments with these easy equations. Analyze Investments Quickly With Ratios
If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios. Ratio Analysis Tutorial

Market capitalization divided by net earnings plus noncash charges, or market price per share divided by cash flow (earnings plus noncash charges) per share. (Both calculations yield the same ratio). Dividends are paid out of cash flow, not earnings.

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)