FAQs
The Price to Free Cash Flow Ratio, or P / FCF Ratio, values a company against its Free Cash Flow. It is the Share Price of the company divided by its Free Cash Flow per Share. This is measured on a TTM basis and uses diluted shares outstanding.
What does price to free cash flow mean? ›
The price to free cash flow is a metric used to evaluate and compare a firm's market price of a single share with its per-share price of free cash flow (FCF). This metric is much like the evaluation metric of price to cash flow.
What does price to cash flow tell us? ›
What Does the Price-to-Cash Flow (P/CF) Ratio Tell You? The P/CF ratio measures how much cash a company generates relative to its stock price, rather than what it records in earnings relative to its stock price, as measured by the price-earnings (P/E) ratio.
Is free cash flow good or bad? ›
Free cash flow indicates the amount of cash generated each year that is free and clear of all internal or external obligations. This is cash that a company can safely invest or distribute to shareholders. While a healthy FCF metric is generally seen as a positive sign by investors, context is important.
What is free cash flow in layman's terms? ›
Free cash flow (FCF) is the money that remains after a company pays for everyday operating expenses and capital expenditures. Knowing a company's free cash flow can give insight into its financial health.
What if price to free cash flow is negative? ›
What Does Negative Free Cash Flow Mean? When there is no cash left over after meeting operating, capital, and adjusting for non-cash expenses, a company has negative free cash flow. This means that the company has no excess cash on hand in a given period, which could be a sign of poor financial health.
Is price to free cash flow a good metric? ›
The price-to-free cash flow (P/FCF) ratio is a crucial metric used by investors to evaluate the valuation of a company relative to its free cash flow. It provides insight into how well a company can generate cash relative to its market value, making it a popular choice for assessing the attractiveness of an investment.
What should be ideal price to free cash flow? ›
What is a good price to cash flow ratio? A good price to cash flow ratio is anything below 10. The lower the number, the better the value of the stock.
Do you want higher or lower free cash flow? ›
A higher free cash flow yield is ideal because it means a company has enough cash flow to satisfy all of its obligations. If the free cash flow yield is low, it means investors aren't receiving a very good return on the money they're investing in the company.
What is a good free cash flow yield? ›
Free Cash Flow Yield determines if the stock price provides good value for the amount of free cash flow being generated. In general, especially when researching dividend stocks, yields above 4% would be acceptable for further research. Yields above 7% would be considered of high rank.
Free cash flow, or FCF, is the money that is left over after a business pays its operating expenses (OpEx), such as mortgage or rent, payroll, property taxes and inventory costs — and capital expenditures (CapEx).
What does FCF tell us? ›
FCF is a common measure of a company's financial performance and indicates how much cash you have remaining after paying for day-to-day operating costs and capital expenses. Put simply, it is operating cash flow less capital expenditures.
Does free cash flow mean profit? ›
Is free cash flow the same as profit? Free cash flow (FCF) is a measure of a business's profitability, but is not equivalent to overall net income. Net income is the amount of profit that a company has reported over a certain time period.
What is the free cash flow rule? ›
To calculate FCF using sales revenue, take the revenue generated by the company through its business and subtract the cost that is associated with generating that revenue (known as operating expenses; the sum of taxes, and all the operating costs) along with the net investment in operating capital.
Why is free cash flow better than net income? ›
Alternatively, net income is easier to manipulate, and companies can do this by increasing revenues or decreasing business costs. Since it's harder to manipulate, cash flow is typically a better metric with which to gauge a company's financial health.
Is free cash flow a good indicator? ›
Free cash flow is a powerful metric in financial analysis, providing insights into a company's financial health, cash-generating capacity, and ability to meet financial obligations.
What is a good FCF yield? ›
Free Cash Flow Yield determines if the stock price provides good value for the amount of free cash flow being generated. In general, especially when researching dividend stocks, yields above 4% would be acceptable for further research. Yields above 7% would be considered of high rank.
