how is the price to free cash flow ratio used 
because the price to free cash flow ratio is a value metric lower numbers generally indicate that a company is undervalued and its stock is relatively cheap in relation to its free cash flow conversely higher price to free cash flow numbers may indicate that the company s stock is somewhat overvalued in relation to its free cash flow therefore value investors tend to favor companies with low or decreasing p fcf values that indicate high or increasing free cash flow totals and relatively low stock share prices compared to similar companies in the same industry the price to free cash flow ratio is a comparative metric that needs to be compared to something to mean anything past p fcf ratios competitor ratios or industry norms are comparable ratios that can be used to gauge value they tend to avoid companies with high price to free cash flow values that indicate the company s share price is relatively high compared to its free cash flow in short the lower the price to free cash flow the more a company s stock is considered to be a better bargain or value as with any equity evaluation metric it is most useful to compare a company s p fcf to that of similar companies in the same industry however the price to free cash flow metric can also be viewed over a long term time frame to see if the company s cash flow to share price value is generally improving or worsening the price to free cash flow ratio can be manipulated by a company for example you might find some that preserve cash levels in a reporting period by delaying inventory purchases or their accounts payable payments until after they have published their financial statements the fact that reported numbers can be manipulated makes it essential that you analyze a company s finances entirely to achieve a larger picture of how it is doing financially when you do this over a few reporting periods you can see what a company is doing with its cash how it is using it and how other investors value the company 