Price to free cash flow compares a company's per-share market price to its per-share amount of free cash flow. This metric is very similar to the valuation metric of price to cash flow but is considered more exact, owing to the fact that it uses free cash flow, which subtracts capital expenditures (CAPEX) from a company's total operating cash flow, thereby reflecting the actual cash flow available to fund non-asset-related growth. Companies use this metric when they need to expand their asset bases either in order to grow their businesses or simply to maintain acceptable levels of free cash flow.
The price to free 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 free 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 free cash flows.
These ratios combine line-item filing data with stock prices. The price used in the calculation depends on the period of the financials. The latest close price is used for ratios that involve the latest financials, like the most recent quarter or the latest trailing twelve fiscal months (TTM). For ratios that involve older financials, like the quarter one quarter ago, or the TTM one year ago, the price used for the calculation is the closing price from the first trading day following the period statement's announcement date.
Quarterly values from Income & Cashflow statements are annualized to make the resulting factor more readily comparable with 12-month factors. The annualization is done by multiplying the quarterly figures by approximately 4 (depends on the actual number of days in the period).
You can either use a prebuilt ratio or use the function to define your own.
RatioName(offset,type)
offset: 0-24 (for interim) 0-19 (for annual)
type: QTR (for interim), ANN (for annual), TTM (for trailing twelve months)
For example to screen for stocks whose P/E today is less than their P/E from their previous fiscal 4 quarters enter:
PEExclXor(0,TTM) < PEExclXor(4,TTM)
The above can also be done using prebuilt ratios:
PEExclXorTTM < PEExclXorPTM
Below are the available pre-built ratios with the corresponding parameters for the formula. Please note that availability varies by factor.
|
Period |
Description |
Price |
Line Item |
|
Q |
Recent Quarter |
Close(0) |
(0, QTR) |
|
PQ |
Prior Quarter |
AD+1 * |
(1, QTR) |
|
PYQ |
Prior Year Quarter |
AD+1 * |
(4, QTR) |
|
TTM |
Trailing Twelve Months |
Close(0) |
(0, TTM) |
|
PTM |
Prior TTM |
AD+1 * |
(4, TTM) ** |
|
A |
Recent Annual |
Close(0) |
(0, ANN) |
|
PY |
Prior Year |
AD+1 * |
(1, ANN) |
* AD+1: uses the closing price from the first trading day following the period statement's announcement date. For TTM, the AD is that of the latest quarter which is included in the TTM.
** PTM uses interim periods, so the offset is 4, not 1.
Click here for the Line-Item Reference Spreadsheet.