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. It is calculated as follows:
Net cash flows / Average number of shares outstanding = Cash flow per share
For example, 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
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.