Definition
P/FCF uses free cash flow instead of earnings for valuation, providing a cleaner picture of true cash-generating ability. Since FCF accounts for capital expenditures, it represents cash actually available for shareholders. P/FCF is particularly useful for capital-intensive industries where depreciation policies can distort earnings-based metrics.
functions Formula
P/FCF = Share Price / Free Cash Flow Per Share
lightbulb Example
Stock trades at $60, FCF per share is $4. P/FCF = 15x. Comparable companies trade at 20x FCF, suggesting potential undervaluation.
verified_user Key Points
- Cash-flow based valuation less susceptible to accounting manipulation
- Lower P/FCF may indicate undervaluation
- Useful for capital-intensive businesses
- FCF yield (inverse) shows cash return on market price