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QuestionsCategory: Valuation QuadrantCashflow on Equity
Yong asked 4 years ago

Hi, how is CF/E is used and what is rule of thumb for its ratio?

1 Answers
Victor Chng answered 4 years ago

Hi Yong,
Sometime, the company net profit may be understated hence if you will to calculate ROE, it will be a lower figure. Therefore, using Cash Flow to Equity will give a better picture of the true earning of the company. It works the same as ROE in this context.

Yong replied 4 years ago

Thanks, Vic. What is advisable ratio in this scenario? > 10%?

Victor Chng replied 4 years ago

I will say at least 15% but please don;t get to fixed by the rule because you may miss some multibagger companies too. The important things are Business comes first follow by management. Sometime the company cash flow may be affected temporary which does not show the 15%, we cannot just write them off but need to understand why the cash flow to equity drop.

Yong replied 4 years ago

roger that. thanks!