Deleveraged Cash Flow to Market Ratio
factor.formula
Enterprise free cash flow (TTM)
Market value of net operating assets
Market value of net operating assets = Market value + Financial liabilities - Financial assets
The calculation formula of this factor is: \frac{\text{FCF}_{TTM}}{\text{EV}_{Operating}}. Among them, FCF_{TTM} represents the total free cash flow of the enterprise in the last 12 months; EV_{Operating} is the market value of net operating assets, which is calculated by adding financial liabilities to the market value and subtracting financial assets.
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Enterprise free cash flow (Trailing Twelve Months) refers to the total cash flow that a company can freely use in the past 12 months, which is usually calculated by deducting capital expenditures from cash flow from operating activities.
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The market value of net operating assets refers to the market value of net assets related to operating activities after deducting financial assets and liabilities. It is equal to the market value plus financial liabilities and minus financial assets. Financial liabilities usually refer to interest-bearing liabilities, and financial assets usually refer to trading financial assets, etc.
factor.explanation
This factor uses the company's free cash flow (FCF) rather than simple operating cash flow, because it better reflects the company's true profitability. Compared with using market value directly, using operating net asset value (EV_Operating) more accurately measures the value of the company's core assets and effectively eliminates the distorting impact of financial activities on the company's value. A high cash flow/operating net asset value ratio may mean that the company is undervalued by the market and has investment value.