Enterprise value to free cash flow

Enterprise value to free cash flow (EV/FCF) is a financial ratio that compares a company's total enterprise value (EV) to its free cash flow (FCF). This ratio is used to assess how effectively a company generates cash relative to its overall valuation.

Enterprise value to free cash flow = Enterprise value / Free cash flow

The enterprise value is calculated based on the market capitalization from the last closed trading session and the balance sheet data from the last completed quarter or half-year.

If the free cash flow is negative, the formula will return null, indicating that the company is not generating positive cash flow, which can be a significant concern for investors.

A lower EV/FCF ratio indicates that a company is generating cash more efficiently relative to its enterprise value, suggesting that investors can recoup their investment more quickly. This can be particularly appealing for investors looking for companies with strong cash flow generation capabilities, as it may signal a good opportunity for growth or reinvestment. Conversely, a high EV/FCF ratio may indicate that a company is overvalued or not generating sufficient cash flow, which could be a red flag.