Price-to-Cash Flow Ratio (P/CF)

The price-to-cash flow ratio offers investors a somewhat more useful look at a company's value than the P/E ratio, because the price-to-cash flow ratio uses a denominator that excludes the effects of depreciation and the accounting differences related to depreciation. It turns the attention to how much cash a company generates relative to its stock price rather than what it records in earnings relative to stock price.

However, the price-to-cash flow ratio is usually more insightful for companies within the same industry, because capital intensity (and thus depreciation) can vary widely among industries. For example, companies with lower price-to-cash flow ratios tend to be more capital-intensive. Thus, the definition of a "high" or "low" ratio should be made within this context.