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Price to Cash Flow Ratios

  • Analysts may choose to value stocks based on price to cash flow ratios.

  • The cash flow applied could be: Net Income plus Non-cash Charges (which is not correct); Cash Flow from Operations; Adjusted CFO; or Free Cash Flow to Equity.

  • Positives of Cash Flow Ratios:

  • Cash flows are more objective than earnings.

  • When earnings are volatile, cash flow ratios will be more stable than the P/E ratio.

  • Stock return trends can be analyzed within the context of differences in price to cash flow values.

  • Drawbacks of Cash Flow Ratios:

  • If Free Cash Flow to Equity is negative, then the P/FCFE metric cannot be used to value a stock.

  • FCFE can be volatile.

  • Cash flow approximation metrics can be misapplied by the analyst.

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Price to Sales (P/S) Ratio

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Enterprise Value (EV) to EBITDA

01
Equity Analysis Part 3 - Introduction
02
Free Cash Flow Valuation
03
One, Two, and Three Stage FCF Calculations
04
Share Price Multiple Methods in Equity Valuation
05
Price to Earnings (P/E) Ratio (Leading P/E and Trailing P/E)
06
Price to Book (P/B) Value Ratio and Equity Valuation
07
Price to Sales (P/S) Ratio
08
Price to Cash Flow Ratios
09
Enterprise Value (EV) to EBITDA
10
Dividend Yield for Valuing Equity
11
Residual Income (RI) Valuation Model

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Financial Analysis