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Cash Earnings Per Share (Cash EPS)

Cash Earnings Per Share (Cash EPS)

What Does Cash Earnings Per Share Meaning?

Cash earnings per share (cash EPS), or all the more commonly called operating cash flow, is a financial performance measure contrasting cash flow with the number of shares outstanding. Cash EPS varies from the more famous net profit measure, earnings per share (EPS), which looks at net income on a for every share basis.

Free of non-cash parts, for example, depreciation which is remembered for profit based EPS measures, Cash EPS might demonstrate a more solid check of financial and operational wellbeing.

The higher a company's cash EPS, the better having performed over a period is considered. A company's cash EPS can be utilized to draw correlations with different companies or trends in a company's business.
Cash EPS = Operating Cash FlowDiluted Shares Outstandingwhere:EPS = earnings per share\begin&\text\ =\ \frac{\text}{\text}\&\textbf\&\text\ =\ \text\end

Figuring out Cash EPS

While breaking down a company, a standard financial analysis technique looks at cash flow from operations (CEPS) to reported net income. A common warning sign for aggressive revenue recognition frequently surfaces while operating cash flow begins to physically lag behind reported net income. At the point when this occurs, it could be a red flag for perceiving revenue too soon.

Being somewhat powerless to accounting manipulation, fundamental EPS can be a temperamental measure of performance. Thusly, while assessing a likely investment, investors, for example, Warren Buffet favor cash based measures to direct their analysis.

All the more as of late, stock buybacks, instead of stock dividends, have been a staggering famous method to return profits to shareholders. A contention can be made this helps increase EPS, by reducing shares outstanding, consequently assisting corporate executives with gaming earnings per share growth to juice performance-based compensation plans.

Being a more conservative measure of performance, cash EPS can wipe out a portion of these issues common to the greater utilization of financial engineering.

Benefits of Using Cash EPS

  • CEPS is less inclined to accounting manipulation, which offers a more clear image of cash flow and real earnings. Added transparency is an indication of good corporate governance.
  • CEPS shows investors on a for every share basis how much profit each share produces. This distinguishes incremental value.
  • CEPS isn't subject to a similar short-term market center seen with EPS.