Price-to-Cash-Flow Ratio

Because operating cash flow is far harder to manage than net profit, this ratio is more robust than the P/E for companies with aggressive accounting or heavy non-cash charges. It is particularly useful for capital-intensive businesses where large depreciation charges depress earnings while cash generation remains strong. The catch is that operating cash flow sits before capital expenditure, so a company whose cash is entirely consumed by maintaining its plant looks cheap on this measure. Comparing the P/E with the P/CF is itself the diagnostic: a wide and widening gap says earnings and cash are diverging.