Price multiples are commonly **used to determine the equity value of a company**. The relative ease and simplicity of these relative valuation methods make them among the favorites of institutional and retail investors.

__Price-to-earnings__, __price-to-sales__, and __price-to-book__ values are typically analyzed when comparing the prices of various stocks based on a desired valuation standard. The price-to-cash-flow multiple (P/CF) **falls into the same category as the above price metrics, as it evaluates the price of a company's stock relative to how much cash flow the firm is generating**.

**Calculating the Price-to-Cash-Flow Ratio**

P/CF multiples are calculated with a similar approach to what is used in the other price-based metrics. The **P, or price**, is simply the **current share price**. In order to avoid volatility in the multiple, a 30- or 60-day average price can be utilized to obtain a more stable value that is not skewed by random market movements.

The **CF, or cash flow**, found in the denominator of the ratio, i**s obtained through a calculation of the trailing 12-month cash flows generated by the firm, divided by the number of shares outstanding**.

Let's assume that the average 30-day stock price of company ABC is $20â€”within the last 12 months $1 million of cash flow was generated and the firm has 200,000 shares outstanding. Calculating the cash flow per share, a value of $5 is obtained (or $1 million / 200,000 shares). Following that, one would divide $20 by $5 to obtain the required price multiple.

Source: Investopedia, Analyzing the Price-to-Cash-Flow Ratio, accessed 25 April 2024, <https://www.investopedia.com/articles/stocks/11/analyzing-price-to-cash-flow-ratio.asp>

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