A financial ratio that compares an entity’s market value to its operating cash flow (or the entity’s stock price per share to its operating cash flow per share). In other words, at the level of an entity, it simply reflects the market capitalization divided by the operating cash flows of the entire entity. Alternatively, it can be calculated on a per-share basis where the latest closing share price is divided by the operating cash flow per share.
The following formula illustrates this relationship:
Price to Cash Flow Ratio= share price/ operating cash flow per share
This ratio also measures to the current price of an entity’s stock related to the amount of cash generated by the entity.
This ratio is known for short as P/ CF.
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