Price-to-Free Cash Flow (P/FCF)

Valuation Metric Investment Wiki — Fundamentals
The Price-to-Free Cash Flow (P/FCF) metric tests a company's market valuation against the actual cash it piles up in the bank. It is frequently preferred over the standard P/E Ratio because earnings (Net Income) can be artificially smoothed, while Free Cash Flow is highly transparent and difficult to fake.
Quick Reference
Type Valuation Multiple
Formula Market Capitalization ÷ Free Cash Flow
Value Territory < 15x
Growth Territory > 25x

1.0 The Formula

Basic Form

formulaP/FCF = Market Capitalization / Total Free Cash Flow
Or: Current Share Price / Free Cash Flow Per Share

A P/FCF of 10.0x means you are paying $10 for every $1 of actual cash profit the company generated this year. A low number generally indicates a bargain, while a high number implies the market has priced in massive future growth.

2.0 Interpretation & Edge Cases

Because capital expenditures (CapEx) are incredibly lumpy (a manufacturer might spend $2B building a factory in 2024, and nothing in 2025), Free Cash Flow fluctuates wildly year-over-year. P/FCF can look horrible for one year, but recover completely the next. It's often safer to use a 3-year trailing average of FCF.

3.0 Related Pages

Free Cash Flow (FCF)

The denominator of this multiple; must be strictly verified before running the multiple.

Free Cash Flow Yield

The exact inverse of P/FCF (FCF / Market Cap), displayed as a percentage rather than a multiple.

P/E Ratio

Comparing P/FCF with P/E is an excellent way to spot accounting manipulation. If P/E is 10 (cheap) but P/FCF is 150 (ridiculously expensive), the company's "earnings" are entirely non-cash illusions.