Price-to-Free-Cash-Flow (P/FCF): formula and how to read it

What you pay for each dollar of spare cash. Market capitalization divided by trailing twelve-month free cash flow. Negative free cash flow ranks below every positive figure, and never passes a P/FCF filter.

Stock Meadow groups it under Valuation, and shows it in tables as P/FCF.

P/FCF = market capitalization ÷ free cash flow over the trailing twelve months (free cash flow is usually operating cash flow minus capital expenditure)

A company with a market capitalization of $2 billion that generated $100 million of free cash flow has a P/FCF of 20. The numbers are made up for illustration.

A lower P/FCF means you pay less for each dollar of spare cash. Because cash is harder to dress up than reported profit, many investors check it next to the P/E ratio.

When Stock Meadow ranks stocks, a lower figure scores better.

• Free cash flow can swing from year to year with the timing of large investments, so one year can mislead.
• Negative free cash flow has no meaningful multiple. Stock Meadow ranks it below every positive figure and never lets it pass a P/FCF filter.
• Growing companies may deliberately spend heavily today, which depresses free cash flow.

How Stock Meadow handles gaps. Usually blank when free cash flow figures aren't available. A negative figure shows as Negative FCF, ranks below every positive figure and never passes a filter.

Treat any single metric as one clue, and read the company's financial statements before drawing a conclusion. Stock Meadow's figures are research tools based on reported data, not investment advice.

Fixed-recipe models that score it: Trending Value (O'Shaughnessy).

In Weighted ranking, Z-score composite and Balanced (no weak link), you choose the metrics and weights yourself, so you can include it in a custom score.

Read about every scoring model on the scoring models page.

• Free Cash Flow Margin: share of sales that becomes spare cash.
• P/E Ratio (Price-to-Earnings): what you pay for each dollar of profit.
• Dividend Cover by Free Cash Flow: how many times spare cash covers the dividend.
• EV/EBITDA: whole-company price vs. operating cash earnings.

Is price to free cash flow better than the P/E ratio?

They answer different questions. Profit can include accounting items that are not cash, so P/FCF is a useful cross-check. Free cash flow is lumpier, so the two are best read together.

Is a higher or lower P/FCF better?

When Stock Meadow ranks stocks, a lower figure scores better. That is a ranking convention, so read P/FCF alongside other measures and compare similar companies.

Why is P/FCF blank for some stocks?

It is usually blank when free cash flow figures aren't available. Stock Meadow leaves the figure blank rather than guessing it.