What is Price-to-Cash-Flow Ratio?
The price-to-cash-flow (P/CF) ratio compares a company’s share price to its operating cash flow per share. It is a valuation multiple that is harder to manipulate than P/E because cash flow is less affected by accounting policies than reported earnings.
How It Works
- Formula: Share price / Operating cash flow per share
- Lower ratio generally suggests cheaper valuation, but always compare to peers
- Less distorted by non-cash items like depreciation, amortization, and stock-based comp
- Particularly useful for capital-intensive industries with heavy depreciation
- Variants use free cash flow instead of operating cash flow
Saudi Context
Saudi investors comparing Tadawul-listed industrials, utilities, or real-estate companies often prefer P/CF over P/E because of the heavy depreciation typical in these sectors. CMA financial disclosures provide the cash flow statements needed to build the ratio.
Example
A Saudi cement company trades at SAR 60 per share with operating cash flow per share of SAR 5. P/CF = 60 / 5 = 12. A peer with P/CF of 18 looks more expensive on the same operating-cash-flow basis.