Valuation
Price to Free Cash Flow
Price to free cash flow prices the equity against cash left after the spending needed to keep the business running.
Earnings can diverge from cash for years. Free cash flow is the closer cousin of what an owner can take out, reinvest, or use for dividends and buybacks. P/FCF says how many dollars of market cap sit on each dollar of that cash. A lower multiple is cheaper, all else equal.
Watch the capital-spending cycle. A company that just finished a plant can look suddenly cheap on P/FCF. A company about to start one can look expensive for a reason. Read the ratio across several years, not one trough or peak year of spending.
Formula
P/FCF = Market capitalization ÷ trailing free cash flow
Live example
Apple Inc. (AAPL) last printed at $345.33 with a market cap of $5.04T. Apply the formula on this page to that live price. Where the quote is missing an input, the stock page's financials are the next place to read it.
Related
Free Cash Flow · Free Cash Flow Yield · P/E Ratio
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Questions
Is free cash flow better than earnings?
It is harder to fake with accounting choices, and easier to distort with the timing of capital spending. Use it beside EPS, not instead of a full reading.
What if free cash flow is negative?
The ratio is not useful. Negative cash flow means the multiple would flip sign. Look at why cash is negative before you invent a valuation.