A measure of the market’s expectations of a firm’s future financial health. Because this measure deals with cash flow, the effects of depreciation and other non-cash factors are removed. Similar to the price-earnings ratio, this measures provides an indication of relative value.
Calculated by:
Because accounting laws on depreciation vary across jurisdictions, the price-to-cash-flow ratio can allow investors to assess foreign companies from the same industry (ex. mining industry) with a bit more ease.
