The Price-To-Cash-Flow Method of Stock Valuation Generally

question 46

Multiple Choice

The price-to-cash-flow method of stock valuation generally

• A) uses either EBITDA or operating cash flow from the cash flow statement as a measure of cash flow.
• B) relies on historical cash flows.
• C) produces a cash flow multiple that is greater than the P/E multiple.
• D) applies the P/E multiple to the cash flow per share value.

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Definitions:

CVP Income Statement

A financial report that shows the effects of varying levels of sales and product costs on a company's net income.

Gross Profit

The financial measure representing the difference between sales revenue and the cost of goods sold before deducting administrative and selling expenses.

CVP Analysis

Cost-Volume-Profit Analysis; a financial tool used to determine the impact on an organization's profits due to changes in volume, costs, and prices.

Fixed Cost Per Unit

The portion of fixed costs attributed to each unit of production, which stays constant regardless of the level of production or sales volume.