Market cap vs 10× OCF
ValuationThe current market cap as a ratio of ten times operating cash flow — a fixed anchor for spotting inexpensive cash generators.
Formula
Ratio = market cap ÷ (10 × operating cash flow); 1.0 means the company trades exactly at 10× OCF
Why it matters
Ten times operating cash flow is a deliberately simple anchor: at that price, the enterprise's pre-capex cash would repay your purchase in a decade, roughly a 10% cash yield. Historically, durable businesses have rarely stayed below that level for long. The ratio turns the anchor into a screen — below 1.0 the market is offering the company at or under the anchor; far above it, you are paying for growth and must judge whether the growth is real.
What good looks like
At or below 1.0 (market cap ≤ 10× OCF) is the zone worth investigating — either a bargain or a business the market believes is deteriorating, and your job is to determine which. 1.0–2.5 covers most reasonably priced quality companies. Above 3–4, the valuation rests mostly on expectations of substantial future growth.
Caveats
The anchor ignores capex entirely, so capital-intensive companies look cheaper than they are — a business that must reinvest most of its OCF is not yielding 10% at 10× OCF. It also ignores debt; cross-check with OCF yield on EV, which fixes both blind spots for leverage. A fixed multiple cannot account for interest-rate regimes: when bonds yield 1%, 10× OCF is a stricter test than when they yield 5%.