Price to Cash Flow Ratio Calculator
Valuation Analysis Results
What Is the Price to Cash Flow Ratio?
The Price to Cash Flow ratio (P/CF) measures how much investors are paying for every dollar of operating cash flow.
Simple Formula
P/CF Ratio = Market Price per Share ÷ Operating Cash Flow per Share
It can also be written as:
P/CF Ratio = Market Capitalization ÷ Total Operating Cash Flow
Both formulas give the same result.
In plain terms:
- A low P/CF may mean the stock is undervalued
- A high P/CF may mean the stock is expensive
But context matters. Always compare the ratio to companies in the same industry.
What Is Operating Cash Flow (OCF)?
Operating Cash Flow is the cash a company generates from its normal business activities.
It does not include:
- Investing activities
- Financing activities
OCF shows whether the core business is actually producing cash.
For example:
A company may show strong net income. But if customers are not paying on time, cash flow may be weak. That is a warning sign.
Cash flow tells the real story.
What Is Price to Free Cash Flow (P/FCF)?
Your calculator also includes Price to Free Cash Flow (P/FCF).
Free Cash Flow is calculated as:
Free Cash Flow = Operating Cash Flow − Capital Expenditures (CapEx)
CapEx includes spending on:
- Equipment
- Buildings
- Technology
- Infrastructure
Free cash flow is important because it shows how much money remains after maintaining or expanding the business.
P/FCF Formula
P/FCF Ratio = Stock Price ÷ Free Cash Flow per Share
This ratio is more conservative than P/CF.
If a company spends heavily on equipment, P/FCF may be much higher than P/CF.
How the Price to Cash Flow Ratio Calculator Works
Your calculator requires four inputs:
- Current Stock Price per Share
- Shares Outstanding
- Operating Cash Flow
- Capital Expenditures (Optional for P/FCF)
Step 1: Market Capitalization
The calculator first computes:
Market Cap = Stock Price × Shares Outstanding
This tells you the total market value of the company.
Step 2: Cash Flow Per Share
It calculates:
- Operating Cash Flow per Share = OCF ÷ Shares
- Free Cash Flow per Share = (OCF − CapEx) ÷ Shares
These values help determine valuation on a per-share basis.
Step 3: Ratio Calculation
- P/CF = Stock Price ÷ OCF per Share
- P/FCF = Stock Price ÷ FCF per Share
If free cash flow is negative, the calculator shows “N/A” for P/FCF.
Step 4: Valuation Assessment
The calculator classifies valuation based on P/CF:
- Below 5 → Potentially Undervalued
- 5 to 10 → Fair Value
- 10 to 20 → Premium Valuation
- Above 20 → Potentially Overvalued
This is a general guideline. Different industries have different normal ranges.
Example Calculation
Let’s walk through a simple example.
- Stock Price: $50
- Shares Outstanding: 10 million
- Operating Cash Flow: $100 million
- CapEx: $20 million
Step 1: Market Cap
$50 × 10 million = $500 million
Step 2: OCF Per Share
$100 million ÷ 10 million = $10 per share
Step 3: P/CF Ratio
$50 ÷ $10 = 5x
Step 4: Free Cash Flow
$100 million − $20 million = $80 million
FCF per share = $80 million ÷ 10 million = $8
P/FCF = $50 ÷ $8 = 6.25x
This suggests the stock may be reasonably valued, depending on its industry.
Why Investors Use P/CF Instead of P/E
Many investors prefer P/CF over Price to Earnings (P/E) because:
- Cash flow is harder to manipulate than earnings
- Depreciation and accounting rules distort profits
- Cash shows real business strength
For capital-intensive companies, this ratio is especially useful.
When the P/CF Ratio Is Most Useful
The Price to Cash Flow ratio works best for:
- Manufacturing companies
- Industrial firms
- Utility companies
- Energy businesses
It may be less useful for:
- Early-stage startups
- High-growth tech companies reinvesting heavily
- Companies with irregular cash flow
Always analyze the business model before trusting the number.
How to Interpret the Results Correctly
Here is how to think about different ranges:
Low P/CF (Below 5)
- Could signal undervaluation
- Could signal financial trouble
Investigate debt levels and revenue trends.
Moderate P/CF (5–10)
- Often considered healthy
- May indicate stable operations
Compare with competitors.
High P/CF (Above 20)
- Market expects strong future growth
- Stock may be overpriced
High growth can justify a high ratio. But growth must actually happen.
Common Mistakes to Avoid
- Comparing companies across different industries
- Ignoring debt levels
- Using outdated cash flow data
- Forgetting capital expenditures
- Looking at one year only
Always review multi-year trends.
P/CF vs P/FCF: Which Is Better?
There is no single best ratio.
- P/CF is simpler and smoother
- P/FCF is stricter and more realistic
If CapEx is high, P/FCF gives a clearer picture.
Many professional investors check both.
Why This Calculator Is Helpful
Your calculator simplifies the process by:
- Automatically calculating market cap
- Showing cash flow per share
- Providing both P/CF and P/FCF
- Giving a quick valuation assessment
It saves time and reduces manual errors.
Instead of juggling spreadsheets, you can get instant results.