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Anonymous

18 Apr 2019

Stocks

What other metrics to complement PE ratio?

Discussion (2)

What are your thoughts?

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TUBInvesting

07 Mar 2019

Finance at Singapore Management University

As per rightfully pointed out by Isaac, rather than earnings, cashflow is a better indicator.

I always preferred Price to FCF as an indicator.

Isaac Chan

07 Mar 2019

Business at NUS

Other multiples that can be considered include Enterprise Value / Free Cashflow and Price / Operating Cashflow Per Share.

EV / FCF multiple might help you to see yourself as the "owner" of the business, since the value of the business comprises of both debt and equity holders. The benefit of this multiple is that it looks at cashflow, and we have all heard that "cash is king" for a business. It also takes into account capital expenditures and working capital changes, and adds back the effect of non-cash expenses.

Price / OCF per share could be helpful against just PE ratios since it takes cashflow into account as well. I think where the industries are more working capital intensive, this multiple might help also. But compared to EV / FCF, this looks at OCF specifically, which should be a better measure of how the companies regular operating activities are.

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