What is Cash Flow Per Share?
Cash Flow Per Share (CFPS) is a financial metric that measures the amount of cash a company generates per outstanding share of stock. It provides investors with insight into a company's financial health and its ability to generate cash from operations.
The formula is:
$$\text{Cash Flow Per Share} = \frac{\text{Total Cash Flow}}{\text{Number of Shares}}$$
Where:
- Total Cash Flow is the company's operating cash flow (typically from the cash flow statement)
- Number of Shares is the total outstanding shares
Why is Cash Flow Per Share Important?
Cash flow per share is often considered more reliable than earnings per share (EPS) because:
- Cash flow is harder to manipulate through accounting practices
- It shows the actual cash available to shareholders
- It helps assess dividend sustainability
- It provides a clearer picture of financial health
Example Calculation
A company has:
- Total Operating Cash Flow: $120 million
- Outstanding Shares: 15 million
$$\text{CFPS} = \frac{120{,}000{,}000}{15{,}000{,}000} = 8$$
The cash flow per share is $8 per share.
How to Use This Metric
- Compare to EPS: If CFPS is significantly higher than EPS, the company may be undervalued
- Trend Analysis: Look for consistent or growing CFPS over time
- Industry Comparison: Compare CFPS across companies in the same industry
- Dividend Coverage: A higher CFPS relative to dividends per share indicates sustainable dividends