Price-to-Free-Cash-Flow (P/FCF)
Price-to-Free-Cash-Flow (P/FCF)
Market capitalization divided by free cash flow: years of current free cash flow the market price represents. The reciprocal of free cash flow yield.
When to use: Use as a cash-based alternative to P/E. It is harder to flatter with accounting choices, but a single year of capital spending can swing it, so look at several years.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| PFCF | P/FCF Ratio | Price-to-free-cash-flow multiple | integer |
| MarketCap | Market Cap | Equity market capitalization | $ |
| FCF | Free Cash Flow | Operating cash flow minus capital expenditures | $ |
Real-Life Examples
Example 1: Cash Generator
Market cap $5,000M, free cash flow $400M.
Given
Step-by-Step
Twelve and a half years of free cash flow, an 8% FCF yield. Reasonable for a stable business; cheap if the cash flow is growing.
Example 2: Reinvesting Heavily
Market cap $12,000M, free cash flow $300M.
Given
Step-by-Step
40x free cash flow, a 2.5% yield. Justified only if heavy current capital spending will produce much larger cash flows later.
Frequently Asked Questions
They are reciprocals: a P/FCF of 20 is a 5% free cash flow yield. Investors quote whichever is more natural for the comparison at hand.