Cash Flow Per Share
A measure that compares a company’s operating cash flow to its total number of shares outstanding, indicating how much cash flow is available per share.
Introduction to Cash Flow Per Share
When we talk about the financial health of a company, one indicator stands out: Cash Flow Per Share (CFPS). Essentially, this metric measures how much cash flow the company generates for each share of stock outstanding.
Now, you might be familiar with earnings per share (EPS), which is a common way for us to understand a company’s profitability. However, CFPS dives into the actual cash that’s coming into the business—a vital sign of financial strength, especially for us in investment management.
Let’s break it down. CFPS is calculated by taking the net cash flows from operating activities and subtracting preferred stock dividends if there are any. Then, we divide the total by the average number of shares outstanding.
Why does this matter to us? Well, cash is king! It tells us about a company’s ability to pay dividends, reinvest in growth opportunities, or pay down debt. We particularly appreciate the tangible aspect of cash—it’s what keeps the lights on and the business running.
Here’s a simplified table that could illustrate this calculation:
Item | Amount |
---|---|
Net Cash from Operating Activities | $X |
Less: Preferred Dividends Paid | $(Y) |
Equals: Cash Available to Common Shareholders | $Z |
Average Shares Outstanding | N |
Cash Flow Per Share (CFPS) | $Z/N |
CFPS provides us with a clearer picture of a company’s ability to generate cash, which is critical in our analysis and future projections. It’s a complement to other financial indicators and helps us cut through the noise of non-cash accounting figures.
So, as we delve into different investments, we’ll keep an eye on CFPS alongside other factors to assess the true financial standing of the companies in our portfolio.