The price/cash flow ratio has grown in prominence and use for valuing firms because many analysts contend that a firm's cash flow is less subject to manipulation than the firm's earnings per share.

Question

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The statement is true. The price/cash flow ratio is considered a more reliable measure of a company's value because it reflects its true ability to generate cash and is less likely to be manipulated than earnings per share. Cash flow is considered a more accurate measure of a company's financial health since it takes into account non-cash transactions and does not include accounting adjustments. As a result, many analysts and investors prefer to use the price/cash flow ratio rather than the price/earnings ratio to value firms.

The Price/cash Flow Ratio Has Grown in Prominence and Use