Price-To-Cash-Flow Ratio

See: Cash Flow. See: EBITDA.

So you're buying a stock for $28 a share. This year, it has $2 in cash flow, or EBITDA. See: Free Cash Flow so you know the difference. FCF is kind of a more "net number" than is EBITDA...more "pure" when it comes to actual cash.

Why does it even matter? Well, if you're paying $28 for $2 in cash returns this year, you're paying 14 times that number, or a cash on cash return of something like 1/14, or about 7%. Good? Bad? Ugly? Unclear. If the $2 is going to $3 next year and $4 the next, then great; if it's going negative, then yeah, not so good. It's just another metric investors use to figure out whether they're buying a stock on Macy's White Flower Day Sale...or they're at a Persian Rug Bazaar with a bunch of "friends" selling them...stuff.