Note: Effective November 30, 2005, we will make a slight change to the methodology for calculating trailing-12-month (TTM) price-to-earnings, price-to-book, price-to-sales, and price-to-cash-flow for funds and other portfolios. We will now use a harmonic weighted average, rather than an arithmetic weighted average. The harmonic method prevents outliers from skewing the result, and it is consistent with our existing methods for calculating prospective price ratios. This change will not impact the Morningstar Style Box assignments for portfolios.
This represents the weighted average of the price/cash-flow ratios of the stocks in a fund's portfolio. Price/cash-flow represents the amount an investor is willing to pay for a dollar generated from a particular company's operations. Price/cash-flow shows the ability of a business to generate cash and acts as a gauge of liquidity and solvency. Because accounting conventions differ among nations, reported earnings (and P/E ratios) may not be comparable across national boundaries. Price/cash-flow attempts to provide an internationally-standard measure of a firm's stock price relative to its financial performance.
Benefits
The price/cash flow ratio can tell investors approximately how much they're paying for a dollar of cash flow. Because of differences in accounting standards across the globe, price/earnings ratios are not always reasonable for comparing companies from different countries. Price/Cash Flow attempts to provide a consistent standard of comparison.
Origin
Morningstar generates this figure based on the fund’s portfolio and stock statistics, provided by Lotus WorldScope and our internal databases.