Fundamental Analysis

Price to Free Cash Flow

Market cap relative to free cash flow

What is Price to Free Cash Flow?

Price-to-Free-Cash-Flow (P/FCF) compares market capitalisation to the free cash flow the business generates: operating cash flow minus capital expenditures. Unlike P/E, P/FCF is harder to manipulate through accounting choices because cash flow is less subject to accrual adjustments. It is particularly useful for capital-intensive businesses, where depreciation and amortisation can distort earnings. A lower P/FCF generally indicates better value; a company with P/FCF of 15 is generating 1/15th of its market cap in free cash each year. P/FCF is not meaningful for companies with negative FCF or during heavy investment cycles.

Formula

P/FCF = Market Capitalisation / Free Cash Flow

FCF = Operating Cash Flow − Capital Expenditures

Calculator

Market Cap ($M)Operating Cash Flow ($M)Capital Expenditures ($M)

How to Use

1
Find FCF: From the cash flow statement: Operating Cash Flow − CapEx (Purchases of Property, Plant & Equipment).
2
Get market cap: Current share price × diluted shares outstanding.
3
Divide: Market Cap ÷ FCF. A P/FCF of 20 means you pay $20 per dollar of annual free cash flow.
4
Compare: S&P 500 median P/FCF is typically 20-25×. Below 15× often signals value; above 40× may be expensive.

Worked Example

Example: Retailer

Market Cap

$10B

OCF

$800M

CapEx

$200M

FCF = $800M − $200M = $600M. P/FCF = $10B / $600M = 16.7×. The retailer generates 6 cents of free cash per dollar of market cap annually, which is reasonable for a mature, profitable retailer. Compare to sector peers to assess relative value.

Auto-fill FCF from EDGAR filings

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Figures from the most recent annual filing (10-K / 20-F), sourced directly from SEC EDGAR.