Cash flow per share definition
/What is Cash Flow per Share?
Cash flow per share is the amount of a firm’s net cash flows allocated to each share outstanding. Cash flow per share is closely followed by investors, because it is difficult for a company to alter the amount of its cash flows. This makes cash flow per share a more transparent measure of a company’s results than earnings per share, which is subject to some obfuscation under the accounting standards.
How to Calculate the Cash Flow per Share
The cash flow per share is calculated as net cash flows divided by the average number of shares outstanding. The average number of shares outstanding can be a complicated calculation, if there have been a number of share issuances or repurchases during the measurement period. The ratio is calculated as follows:
Net cash flows ÷ Average number of shares outstanding = Cash flow per share
The measure is best tracked on a trend line over multiple years, in order to discern any long-term changes in cash flow levels.
Cash flow information is available on a company’s statement of cash flows. If a business does not provide cash flow information, then it can be approximated by adding non-cash expenses (such as depreciation and amortization) back to the reported net income, plus any net changes in capital investments during the reporting period. Adding back non-cash expenses keeps the net income figure from being artificially deflated.
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The Interpretation of Financial Statements
Example of Cash Flow per Share
A business generates $1,000,000 of net cash flow in its most recent year of operations. During that time, it averaged having 500,000 shares outstanding. This results in the following calculation:
$1,000,000 Net cash flows / 500,000 Average shares outstanding
= $2.00 Cash flow per share