What Is Price to Free Cash Flow?

By Kristi Waterworth – Updated Jun 14, 2025 at 11:51 PM EST

Key Points

Price to free cash flow ratio compares a company's market cap to its free cash produced.
To calculate P/FCF, divide market capitalization by free cash flow from cash flow statement.
Low P/FCF suggests a stock may be undervalued relative to its competitors.
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There are so many different metrics that you can use to evaluate a potential stock investment, including price to free cash flow (sometimes abbreviated as P/FCF). Price to free cash flow tells a particular story about how the market values a company vs. how much money it earns.

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Person using calculator while looking over accounting spreadsheets. — Image source: Getty Images.

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Price to Free Cash Flow

Measurement of how much investors pay per dollar of cash generated by a company after accounting for expenses and investments.

Price to free cash flow compares the shareholder's equity against the actual cash flow of the company, free of capital expenditures, working capital, and dividends. Price to cash flow, on the other hand, looks at shareholder's equity compared to all cash on hand, even if it's cash that's going out, like those dividends. Many consider price to free cash flow to be the better metric.

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Of course, this is just one metric that you should be thinking about -- definitely not a metric that can tell you if you should buy or sell a stock on its own. Instead, do the calculation and consider why the price to free cash flow is what it is. A low number is generally pretty good, but not if there's a scandal brewing or a recent recall has cropped up that may cost the company a lot of money in the upcoming months and years.

Since free cash flow is a backward-looking metric, any significant changes in the business's operations will take time to be reflected in the price-to-free cash flow ratio, which can create a false sense of security.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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