The stock's average price/cash-flow ratio over the past three fiscal years.It is calculated by adding the price/cash flow ratios each fiscal year for the past three fiscal years, then dividing the sum by three. If the price/cash-flow ratio for a given year exceeds 50, its value is capped at 50 when calculating the average.
Benefit
For international stocks, price/cash flow can be a more meaningful figure than price/earnings. Because earnings are calculated in a variety of ways worldwide, price/cash flow minimizes accounting differences and provides a more consistent standard of valuation.
Origin
The company’s prices are received from ComStock, a division of Interactive Data Corporation. The company’s cash flows are taken directly from the annual cash-flow statements for the time period.
For the Pros
Use the following formula to look for companies that trade at a discount to their historical valuations. The same equation can be used with Price/Book, Price/Earnings and Price/Sales:
PC Current / PC 3-Year Average