Price-to- Cash Flow (P/CF)

P/CF = market value of equity / cash flow = market value per share / cash flow per share
Where: cash flow = CF, adjusted CFO, FCFE, or EBITDA

Advantages:
· Less manipulated than earnings
· Tend to be less volatile
· Studies have indicated that it is a reliable metric over the longer-term.

Disadvantages:
· Some items are not included, such as non-cash revenue.

Different cash flow measures are used for different purposes.
Earning plus non cash charges
= net income + depreciation + amortization

Cash flow from operations (CFO)

Adjusted CFO

As CFO includes the items relating to financing and investing activities, need to adjust by adding back the after-tax interest cost
Adjusted CFO = CFO – {net cash interest (1-tax rate)}

Free Cash Flow to Equity (FCFE)

Defined as cash available to shareholders after funding capital required, working capital needs, debt financing requirements. It is more volatile than straight cash flow.

FCFE = (net income + depreciation + new debt issues) – (Capital Spending + additions to working capital + principal repayments)

EBITDA
Represent a flow to both equity and debt.