Price/cash flow is a weighted average of the price/cash flow ratios of the stocks in a fund’s portfolio. Price/cash flow represents the amount of money an investor is willing to pay for a dollar of cash generated from a particular company’s operations. Price/cash flow shows the ability of a business to generate cash and can be an effective gauge of liquidity and solvency. Because accounting conventions differ among nations, reported earnings (and thus P/B ratios) may not be comparable across national boundaries. Price/cash flow attempts to provide an internationally standardized measure of a firm’s stock price relative to its financial performance. In computing the average, Morningstar weights each portfolio holding by the percentage of stock assets it represents; larger positions thus have proportionately greater influence on the fund’s final price/cash flow ratio.
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