The price-to-cash flow ratio measures the value of a stock’s price relative to its cash flow per share. The ratio uses a definition of cash flow which adds back to net income before extraordinary items the main non-cash expenses: depreciation and amortization. It is especially useful for valuing stocks that have positive cash flow but are not profitable because of large non-cash charges.

The price-to-cash flow ratio measures how much cash a company generates relative to its stock price, rather than what it records in earnings relative to its stock price, as measured by the price-earnings ratio. The price-to-cash flow ratio is said to be a better investment valuation indicator than the price-earnings ratio, because cash flows cannot be manipulated as easily as earnings, which are affected by depreciation and other non-cash items. Some companies appear unprofitable because of large, non-cash expenses even though they have positive cash flows.
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