price-to-free-cash-flow ratio

The ratio of price to free cash flow per share. The price-to-free-cash-flow ratio is calculated by dividing the current stock price by free cash flow per share. Free cash flow is derived by subtracting capital expenditures and dividend payments from cash from operations. Higher free cash flows should translate into higher stock prices. Comparing a company’s price-to-free-cash-flow ratio to those of other companies, industry norms and historical averages provides some feel for relative value, much like the traditional price-earnings ratio. Firms with low price-to-free-cash-flow ratios may represent neglected firms at attractive prices.