About Price to Cash Flow

The Price to Cash Flow ratio or P/CF is price divided by its cash flow per share. It's another great way to determine whether a company is undervalued or overvalued with the denominator being cash flow. One of the reasons why some investors prefer the P/CF ratio over the P/E ratio is because the net income of the cash flow portion rightly adds depreciation and amortization back in since these are not cash expenditures. In contrast, the net income that goes into the earnings portion of the P/E ratio does not add these in, thus artificially reducing the income and skewing the P/E ratio. Like the P/E ratio, a lower number is considered better. A value under 20 is generally considered good.