Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Cash Flow per Share

What it is:

Cash flow per share represents the portion of a company's cash flow allocated to each share of common stock.

How it works (Example):

Cash flow per share can be calculated by dividing cash flow earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term. Because the number of shares outstanding can fluctuate, a weighted average is typically used.

The formula for cash flow per share is:

Cash Flow Per Share = (Cash Flow - Preferred Dividends) / Shares Outstanding

Let's assume that during the fourth quarter, Company XYZ reported cash flow of $4 million and distributed preferred dividends of $500,000. During the same time frame, the company had a total of 10 million shares outstanding. We calculate the company's quarterly cash flow per share as follows:

($4,000,000 - $500,000) / 10,000,000 = $0.35

Why it Matters:

Earnings per share (EPS) is a carefully scrutinized metric that is often used as a barometer to gauge a company's profitability per unit of shareholder ownership, but cash flow per share is even more important in some regards. Because of the nature of accounting rules, earnings can be easily manipulated, but cash flow is much harder to manipulate.

As such, even though EPS is a key driver of share prices, many analysts look to cash flow per share as a "check" on the reasonableness of a company's valuation and stock price.
 

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...