Finally, someone has clarified the concept of 'market to cash ratio': what is' market to cash ratio '? (Collectible level work) Neglected mine clearance indicator - market availability rate Market to cash ratio: It is the ratio of stock price to cash flow per share. The market to cash ratio can be used to measure a company's solvency and cash flow situation. This is also Warren Buffett's favorite indicator, besides the return on equity, which is the company's free cash flow. Why is cash flow so important? Actually, friends who fail in business suffer the most. Many companies go bankrupt and go bankrupt, It's not about management issues, but about the lack of effective continuity in the company's cash flow, which means the funding chain is broken, Moreover, in the capital market, it is too easy for companies to falsify their profitability through accounting methods, so I do not pay too much attention to the P/E ratio except for industries with stable profits, such as consumer and pharmaceutical stocks. But cash flow is different. Whether your company makes money or not, whether it can make money, or whether what you are making is paper wealth, can be seen at a glance through cash flow. Let's give an example: A company's net profit for the current year is 100 million yuan, but its operating cash flow and investment cash flow net income are only 20 million yuan. This is very strange. Although the price to earnings ratio may not be high, the price to cash ratio suddenly increases, indicating that the company either has too many outstanding accounts receivable or has poor bargaining power with upstream companies, being led by others. In either case, it is not a high-quality enterprise, which naturally excludes it. Let's give another 'negative' example, which is Maotai. Not only does it not have any credit, but it also takes money from distributors in advance, making it difficult to cut off such a cash flow. Another example is Amazon. If we use the P/E ratio to look at it, it is estimated that it has already gone bankrupt 800 times. However, it is because of its exceptionally abundant cash flow that the capital market has given it a sky high valuation. 🚩 Below, I will explain the actual usage of the market capitalization rate: Firstly, the price to present ratio is used for clearing mines. If we can make good use of this indicator and combine it with the difference in price to earnings ratio, we can exclude many companies in the stock market that falsify profits and embellish financial statements. Secondly, many companies are in a period of rapid expansion, and although they are not profitable, their cash flow is abundant. If one day you find that a stock has a good price to present ratio but a high price to earnings ratio, it is likely to be a dark horse. From this perspective, it is helpful to discover high potential stocks. Again, only the cash flow per share in the annual report is meaningful, and the quarterly report is a bit distorted and not very meaningful. Finally, and most importantly, the indicator of market to present ratio is most effective in bear markets, because only in bear markets will people pay attention to the fundamentals of a company, and only in bull markets will they not. Generally speaking, the lower the market to cash ratio, the better the company's cash flow and investment risk. Conversely, the lower the market to cash ratio, the poorer the company's financial condition. For investment institutions involved in capital operations, the price to cash ratio also means the efficiency of increasing their operating capital. However, when analyzing the operating results of listed companies, the operating cash flow data per share is more valuable as a reference. Cash flow per share is the ratio of the difference between the net cash flow generated by a company's operating activities minus preferred stock dividends and the number of outstanding common shares. Cash flow per share=(Net cash flow from operating activities - Preferred stock dividends)/Number of outstanding ordinary shares In the company's annual report, the cash flow statement will show cash flow generated from operating activities per share. Investors should also analyze the company's cash flow situation by combining two other indicators: cash flow generated from investing activities and cash flow generated from financing activities. The cash flow generated from operating activities only reflects its operating condition, and does not reflect its situation in dividend financing and external and internal investments. If the other two indicators (cash flow generated from investment activities and cash flow generated from financing activities) can be combined, the quality of the company's cash flow operation can be well analyzed. Calculation formula: Market to cash ratio=stock price/cash flow per share The stock price changes in real-time on stock trading days, and the company's cash to market ratio also fluctuates with the changes in stock price, so we may see different cash to market ratios of companies every day. When calculating the cash flow to market ratio, we can use the cash flow per share from the previous year as a reference benchmark. Overall, the advantage of market capitalization rate is, The first is that cash flow is more authentic and less likely to be falsified. Usually, the price to earnings ratio can be verified using the price to present ratio. If there is a significant difference between the price to earnings ratio and the price to present ratio, it indicates that profits may not be very authentic. Secondly, for companies that are not profitable and are rapidly expanding, in addition to using the market to sales ratio, the market to cash ratio can also be used to evaluate the investment value of the company. Of course, the market capitalization rate also has its flaws, Firstly, the calculation of cash flow per share is quite complex, and the cash flow in quarterly reports is meaningless. Only the annual cash flow per share in the annual report has reference value, which also limits the use of the price to cash ratio. Secondly, in a bull market, the valuation of market to cash ratio may not be very useful because in a bull market, most people are driven by emotions and do not pay much attention to the cash flow performance of companies. Generally, the lower the market to cash ratio, the greater the impact.