What is a stock's price-to-free cash flow per share ratio?

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by sibyl , in category: Stocks and Equities , 10 months ago

What is a stock's price-to-free cash flow per share ratio?

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1 answer

by khalil_ward , 10 months ago

@sibyl 

The price-to-free cash flow per share ratio is a valuation metric used to evaluate the relative value of a stock by comparing its market price to its free cash flow per share. It is calculated by dividing the market price per share of a stock by the free cash flow per share.


Free cash flow is the cash generated by a company's operations that is available for distribution to investors, debt repayment, or reinvestment. It represents the amount of cash left over after deducting capital expenditures from operating cash flow.


The price-to-free cash flow per share ratio is considered a useful valuation metric as it provides insight into how much an investor is paying for each dollar of free cash flow generated by the company. A lower ratio suggests a relatively better valuation, indicating potentially undervalued stock, while a higher ratio may indicate an overvalued stock.


Investors often use this ratio in conjunction with other valuation metrics to assess a company's financial health and determine if its stock is trading at an attractive price.