Cash Flow Per Share
What Is Cash Flow Per Share?
Cash flow per share is the after-tax earnings plus depreciation on a per-share basis that capabilities as a measure of a firm's financial strength. Numerous financial analysts place more accentuation on cash flow per share than on earnings per share (EPS). While earnings per share can be controlled, cash flow per share is more hard to change, bringing about what might be a more accurate value of the strength and sustainability of a specific business model.
Figuring out Cash Flow Per Share
Cash flow per share is calculated as a ratio, demonstrating the amount of cash a business produces in light of a company's net income with the costs of depreciation and amortization added back. Since the expenses connected with depreciation and amortization are not really cash expenses, adding them back keeps the company's cash flow numbers from being artificially emptied.
The calculation to decide cash flow per share is:
Cash Flow Per Share = (Operating Cash Flow - Preferred Dividends)/Common Shares Outstanding
Cash Flow Per Share and Free Cash Flow
Free cash flow (FCF) is like cash flow per share in that it develops the endeavor to keep away from artificial deflation of a company's cash flow. The free cash flow calculation incorporates the costs associated with one-time capital expenditures, dividend payments, and other non-repeating or unpredictable activities. The company accounts for these costs at the time they happen rather than spreading them out after some time.
Free cash flow gives data about the amount of cash that a company really produces during the time period being inspected. Since they view free cash flow as giving a more accurate snapshot of a company's finances and profitability, a few investors like to assess a stock on its free cash flow per share rather than its earnings per share.
Earnings Per Share versus Cash Flow Per Share
A company's earnings per share is the portion of its profit that is allocated to each outstanding share of common stock. Like cash flow per share, earnings per share fills in as an indicator of a company's profitability. Earnings per share is calculated by partitioning a company's profit, or net income, by the number of outstanding shares.
Since depreciation, amortization, one-time expenses, and other sporadic expenses are generally deducted from a company's net income, the outcome of an earnings per share calculation could be artificially flattened. Moreover, earnings per share might be artificially swelled with income from sources other than cash. Non-cash earnings and income can remember sales for which the purchaser acquired the goods or services on credit issued through the selling company, and it might likewise incorporate the appreciation of any investments or selling of equipment.
Since the cash flow per share thinks about a company's ability to create cash, it is viewed by some as a more accurate measure of a company's financial situation than earnings per share. Cash flow per share addresses the net cash a firm creates on a per-share basis.
- By adding back expenses connected with amortization and depreciation, a cash flow per share valuation keeps a company's cash flow numbers from being artificially flattened.
- Since cash flow per share addresses the net cash a company creates, a few financial analysts view it as a more accurate measurement of a company's financial wellbeing.
- Cash flow per share capabilities as a measure of a firm's financial strength and is calculated as the after-tax earnings of a company plus depreciation on a per-share basis.