Posted by ipomember > 2014-01-29 00:01 | Report Abuse

3 Price/Cash Flow

现金很多的公司，只能代表公司现金流动方面很安全，不易倒闭。但是无法显示出公司的价值。

One of the famous financial shenanigans in reporting, company can continue posting accounting profit without positive cash flow. There are a lot of ways where a company can boost up their accounting profit when doing financial reporting. Furthermore, p/cash flow is always a good way to track a company valuation. It will be greater if we use free cash flow as guidance. For instance, if you found a company which can generate very consistent FCF, with price/FCF ratio less than 3, i will say it is definitely very attractive. However, please be noted that in accounting, even cash flow can be manipulated.

Posted by johnkiew > 2014-01-29 09:37 | Report Abuse

Agree with ipomember, "Present value of future operating cash flow" is the most rational value calculation. The calculation will dependent on the company business nature. In addition, there is nothing important than the future company prospect but most of the financial calculation are taking the past into consideration. To avoid this, future earning prospect to be include in P/E. P/E is simply good, but accounting bath could inflated or deflated company earnings, and sometime price will be far from the truth.

Financial reporting user are advice to be rational and capable to concern the company as a whole rather than using one or few indicator. When P/E stated undervalued, how about the debt structure? Future company earning driver? Are the operating managers holding company shares? Who are the top 30 shareholders and more.

Buying the shares like running the business, if you are the company owner, you would not using P/E ONLY.

Posted by ipomember > 2014-01-29 21:22 | Report Abuse

well said john, i believe you must be a prudent investor. Happy chinese new year to you in advance.