Price/Cash Flow

What is it? An important ratio in determining the value of certain types of stocks. The ratio is determined by dividing the stocks price by the cash flow Cash flow per share of the most recent fiscal year. Investment bankers often use this measure to determine whether a company is priced fairly in an acquisition. It is also a useful tool when earnings are not a good indicator, such as when a company has large up-front expenses that hide its ability to generate cash. In addition, it is a meaningful number in valuing international stocks because earnings are reported in different ways around the world. Looking at cash flow smoothes out variations in accounting methods.

Added By: Jason

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