# Price to Free Cash Flow

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## Definition of 'Price to Free Cash Flow'

The price-to-free-cash-flow ratio (P/FCF) is a valuation metric that compares a company's stock price to its free cash flow. It is used to determine whether a company is overvalued or undervalued.

A high P/FCF ratio indicates that a company is expensive, while a low P/FCF ratio indicates that a company is cheap. However, it is important to note that the P/FCF ratio is not without its limitations. For example, a company with a high P/FCF ratio may be a good investment if it is expected to grow its free cash flow rapidly in the future.

The P/FCF ratio is calculated by dividing a company's stock price by its free cash flow per share. Free cash flow is the amount of cash that a company generates after paying for its operating expenses and capital expenditures.

To calculate a company's free cash flow, you can use the following formula:

Free cash flow = Net income + Depreciation and amortization - Capital expenditures

Once you have calculated a company's free cash flow, you can divide its stock price by its free cash flow per share to get its P/FCF ratio.

The P/FCF ratio is a useful tool for comparing companies with different capital structures and growth rates. However, it is important to remember that the P/FCF ratio is only one of many factors that should be considered when evaluating a potential investment.

Here are some additional things to keep in mind when using the P/FCF ratio:

* The P/FCF ratio is a forward-looking metric. It is based on a company's expected free cash flow, which can be difficult to predict.

* The P/FCF ratio is not adjusted for risk. A company with a high P/FCF ratio may be more risky than a company with a lower P/FCF ratio.

* The P/FCF ratio can be misleading for companies with negative free cash flow.

Overall, the P/FCF ratio is a useful tool for valuing companies, but it should be used in conjunction with other metrics to get a more complete picture of a company's value.

A high P/FCF ratio indicates that a company is expensive, while a low P/FCF ratio indicates that a company is cheap. However, it is important to note that the P/FCF ratio is not without its limitations. For example, a company with a high P/FCF ratio may be a good investment if it is expected to grow its free cash flow rapidly in the future.

The P/FCF ratio is calculated by dividing a company's stock price by its free cash flow per share. Free cash flow is the amount of cash that a company generates after paying for its operating expenses and capital expenditures.

To calculate a company's free cash flow, you can use the following formula:

Free cash flow = Net income + Depreciation and amortization - Capital expenditures

Once you have calculated a company's free cash flow, you can divide its stock price by its free cash flow per share to get its P/FCF ratio.

The P/FCF ratio is a useful tool for comparing companies with different capital structures and growth rates. However, it is important to remember that the P/FCF ratio is only one of many factors that should be considered when evaluating a potential investment.

Here are some additional things to keep in mind when using the P/FCF ratio:

* The P/FCF ratio is a forward-looking metric. It is based on a company's expected free cash flow, which can be difficult to predict.

* The P/FCF ratio is not adjusted for risk. A company with a high P/FCF ratio may be more risky than a company with a lower P/FCF ratio.

* The P/FCF ratio can be misleading for companies with negative free cash flow.

Overall, the P/FCF ratio is a useful tool for valuing companies, but it should be used in conjunction with other metrics to get a more complete picture of a company's value.

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Copyright © 2004-2023, MyPivots. All rights reserved.