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Sales To Cash Flow Ratio

Sales To Cash Flow Ratio

What is 'Sales To Cash Flow Ratio'

A comparison of a company's sales to its cash flow. The sales to cash flow ratio is expressed on a per-share basis and is calculated by dividing sales per share by the cash flow per share:

Sales to Cash Flow Ratio =


Sales Per Share_____
Cost Flow Per Share


Higher ratios are more favorable and are indicative of positive financial strength within a company. The sales to cash flow ratio is an important metric for measuring financial strength, because it takes into consideration the company's output (sales) as the primary means of inbound cash flow.

Explaining 'Sales To Cash Flow Ratio'

The two metrics used in the sales to cash flow ratio are sales per share and cash flow per share. Sales per share (also known as revenue per share) is a ratio that computes the total revenue earned per share throughout a 12-month period. It is calculated by dividing total revenue earned (in a fiscal year) by the weighted average of shares outstanding (for the same fiscal year):

Sales Per Share =
Total Revenue/Sales____
Average Shares Outstanding


A company's cash flow per share is another measure of financial strength that is calculated by subtracting preferred dividends from operating cash flow and dividing the difference by common shares outstanding:

Cash Flow Per Share =


(Operating Cash Flow - Preferred Dividends)
Common Shares Outstanding


Sales To Cash Flow Ratio FAQ

Is a high price to cash flow ratio good?

A high P/CF ratio indicates that the specific firm is trading at a high price but not generating enough cash flows to support the multiple—sometimes this is normal, depending on the firm, industry, and its specific operations.

How is price to cash flow ratio calculated?

The price-to-cash flow (also known as price/cash flow or P/CF) ratio is a financial multiple that compares a company's market value. Market Cap is equal to the current share price multiplied by the number of shares outstanding.

What is a good price to cash flow ratio?

Currently, the average Price to Cash Flow (P/CF) for the stocks in the S&P 500 is 14.05. Just like the P/E ratio, a value less than 15 to 20 is generally seen as good.

What is a good operating cash flow to current liabilities ratio?

Investors, creditors, and analysts prefer a higher ratio – greater than 1.0 – as it means a company can cover its current short-term liabilities and still have earnings left over. Companies with a high or uptrending operating cash flow are generally considered to be financially healthy.

Can cash flow ratio negative?

Operating cash flow (OCF) is an important number in a company's accounts. A negative OCF means a company is not generating sufficient revenues from its core business operations, and therefore needs to generate additional positive cash flow from either financing or investment activities.

What is included in operating cash flow?

Operating cash flows focus on cash inflows and outflows related to a company's main business activities, such as selling and purchasing inventory, providing services, and paying salaries.

What is the formula for operating cash flow?

Cash flow formula: Operating Cash Flow = Operating Income + Depreciation – Taxes + Change in Working Capital. Cash Flow Forecast = Beginning Cash + Projected Inflows – Projected Outflows = Ending Cash.

Further Reading

Agency costs of free cash flow, corporate finance, and takeoversAgency costs of free cash flow, corporate finance, and takeovers
www.jstor.org [PDF]
… The price decline on the sale of, debt and preferred stock is consistent with the free cash flow theory … of equity (for over $4 billion in each case), substan- tially increased cash dividends, sales of as … The industry apparently generates large cash flows with few growth opportuni- ties …

Corporate investment with financial constraints: Sensitivity of investment to funds from voluntary asset salesCorporate investment with financial constraints: Sensitivity of investment to funds from voluntary asset sales
www.nber.org [PDF]
… The price decline on the sale of, debt and preferred stock is consistent with the free cash flow theory … of equity (for over $4 billion in each case), substan- tially increased cash dividends, sales of as … The industry apparently generates large cash flows with few growth opportuni- ties …

Predicting business failure using cash flow statement based measuresPredicting business failure using cash flow statement based measures
www.emerald.com [PDF]
… The price decline on the sale of, debt and preferred stock is consistent with the free cash flow theory … of equity (for over $4 billion in each case), substan- tially increased cash dividends, sales of as … The industry apparently generates large cash flows with few growth opportuni- ties …

Operating cash flow ratios measure a retail firms ability to payOperating cash flow ratios measure a retail firms ability to pay
clutejournals.com [PDF]
… The price decline on the sale of, debt and preferred stock is consistent with the free cash flow theory … of equity (for over $4 billion in each case), substan- tially increased cash dividends, sales of as … The industry apparently generates large cash flows with few growth opportuni- ties …

R&D investment and internal finance: The cash flow effectR&D investment and internal finance: The cash flow effect
www.tandfonline.com [PDF]
… The price decline on the sale of, debt and preferred stock is consistent with the free cash flow theory … of equity (for over $4 billion in each case), substan- tially increased cash dividends, sales of as … The industry apparently generates large cash flows with few growth opportuni- ties …

Financing innovation and growth: Cash flow, external equity, and the 1990s R&D boomFinancing innovation and growth: Cash flow, external equity, and the 1990s R&D boom
onlinelibrary.wiley.com [PDF]
… The price decline on the sale of, debt and preferred stock is consistent with the free cash flow theory … of equity (for over $4 billion in each case), substan- tially increased cash dividends, sales of as … The industry apparently generates large cash flows with few growth opportuni- ties …

The roles of expected profitability, Tobin's Q and cash flow in econometric models of company investmentThe roles of expected profitability, Tobin's Q and cash flow in econometric models of company investment
papers.ssrn.com [PDF]
… The price decline on the sale of, debt and preferred stock is consistent with the free cash flow theory … of equity (for over $4 billion in each case), substan- tially increased cash dividends, sales of as … The industry apparently generates large cash flows with few growth opportuni- ties …


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Section 508

WCAG 2.0

Section 508