Cash flow per share (CFPS) is a financial metric that measures the amount of cash generated by a company per outstanding share of common stock. CFPS is calculated by dividing a company’s cash flow from operations by the number of common shares outstanding. CFPS is often used to evaluate a company’s financial performance and potential for growth. It is related to earnings per share (EPS), return on equity (ROE), and dividend per share (DPS).
Structure of Cash Flow Per Share
Cash flow per share (CFPS) is a financial metric that measures the amount of cash generated by a company relative to each outstanding share of common stock. It is an important measure of a company’s financial performance, as it provides insight into the company’s ability to generate cash and fund its operations.
The structure of CFPS can vary depending on the accounting principles and methodologies used by the company. However, the following three components are typically included:
1. Operating Cash Flow
- Cash generated from the company’s core operations, excluding non-operating activities such as investing and financing.
- Includes cash from sales, less expenses and depreciation.
- Represents the company’s ability to generate cash through its ongoing business activities.
2. Investing Cash Flow
- Cash used in acquiring or investing in long-term assets, such as property, equipment, or investments.
- Includes purchases of new assets, less proceeds from the sale of old assets.
- Represents the company’s investment in its future growth and operations.
3. Financing Cash Flow
- Cash used in raising capital or repaying debt.
- Includes proceeds from issuing new shares or debt, less payments on existing debt.
- Represents the company’s management of its capital structure and liquidity.
To calculate CFPS, the following steps are typically used:
- Determine the company’s total cash flow from operations, investing, and financing activities.
- Add back any non-cash expenses, such as depreciation and amortization.
- Subtract any cash used for dividends or stock repurchases.
- Divide the resulting amount by the number of common shares outstanding.
The resulting figure represents the CFPS for the period.
Table: Calculation of Cash Flow per Share
| Item | Amount |
|---|---|
| Net income | $100,000 |
| Depreciation and amortization | $20,000 |
| Non-operating gain | $5,000 |
| Cash dividends paid | $10,000 |
| Number of shares outstanding | 100,000 |
| Cash Flow per Share | $1.20 |
Interpretation of CFPS
CFPS can be used to assess a company’s financial health and performance in several ways:
- Cash Generation: A high CFPS indicates that the company is generating a significant amount of cash from its operations.
- Investment Capacity: CFPS can provide insights into the company’s ability to invest in growth opportunities, reduce debt, or pay dividends.
- Dividend Sustainability: A steady or increasing CFPS can indicate the company’s ability to sustain or increase dividend payments.
- Debt Coverage: CFPS can be used to assess a company’s ability to cover its debt obligations and maintain financial stability.
Question 1:
What is cash flow per share used for?
Answer:
Cash flow per share (CFPS) is a financial metric that measures the amount of cash generated by a company over a specific period, typically a quarter or a year, and divides it by the number of outstanding shares. It provides insights into a company’s ability to generate cash flow, which is essential for sustaining operations, investing in growth, and returning cash to shareholders.
Question 2:
How is cash flow per share calculated?
Answer:
CFPS is calculated by taking the net cash provided by operating activities, adding non-cash items such as depreciation and amortization, and dividing the result by the weighted average number of shares outstanding during the period. This formula reflects the cash generated by the company’s core operations and its financial efficiency.
Question 3:
What are the limitations of cash flow per share?
Answer:
CFPS, while a useful metric, has certain limitations. It does not account for non-cash expenses such as stock-based compensation, can be influenced by seasonal factors, and may not reflect the company’s long-term financial position. Additionally, it can vary depending on the accounting methods used by the company.
And that’s a wrap on cash flow per share! If you’ve made it this far, give yourself a pat on the back for learning something new. Remember, cash flow is the lifeblood of any business, so tracking it is crucial for success. Keep an eye out for changes in a company’s cash flow per share, as they can be early indicators of its financial health. Thanks for reading, and be sure to drop by again soon for more financial insights that will keep your money flowing in the right direction.