What is cash flow per share?

What are shares?

Shares are units of ownership in a company. Public companies can have shares listed on exchanges, allowing investors to buy and sell them, although rights can vary by share class. Owning shares may give investors exposure to dividends if paid and to changes in the share price, but dividends and price gains are not guaranteed.

Shares can also be traded over shorter time frames. In that case, traders may focus more on price movements than on long-term ownership. Company performance can influence share prices, but prices can also move due to valuation, expectations, interest rates, sentiment, and broader market conditions.

This brings us back to cash flow. Cash flow can be one input for assessing company performance, which is why some investors and traders look at cash flow and cash flow per share when reviewing a company.

Cash flow per share definition

We know that cash flow is a performance metric that can affect a company’s share price. Determining how significant cash flow is for a company’s share price requires you to be a bit more nuanced than looking at whether the flow is positive or negative.

Positive cash flow is important, but shareholders want to know how this directly relates to the value of their shares. They also want to know that positive cash flow is sustainable. A company that generates positive cash flow consistently may be viewed more favourably, but investors still need to consider debt, capital needs, growth prospects and valuation.

One way to assess cash generation relative to share count is cash flow per share. Cash flow per share is commonly calculated by dividing cash flow from operations, or, in some cases, free cash flow, by the weighted average number of shares outstanding. Because definitions vary, it is important to state which cash flow figure you are using.

Let’s put this equation into an example:

• Company A has 10,000 weighted average shares outstanding
• Company A reports USD 200,000 in operating cash flow for the period
• USD 200,000 operating cash flow ÷ 10,000 shares = USD 20 cash flow per share

In this example, the cash flow per share is USD 20. Some analysts use cash-flow-based metrics alongside EPS because accrual accounting can make earnings less comparable, but no single metric is ‘best’ on its own. In simple terms, earnings per share divides net income attributable to common shareholders by the weighted-average number of shares outstanding.

EPS is a useful performance metric, but profit is an accounting measure and does not equal cash available for distributions; cash availability also depends on cash flow, reinvestment needs, debt servicing and working capital. In other words, EPS and cash flow per share measure different things, so analysts often review them together rather than treating either metric as sufficient on its own.

There is no universal target for cash flow per share. A higher figure may be positive, but it needs context, including the company’s history, sector, capital needs, debt levels, share count changes and valuation. Analysts usually compare cash flow per share over time and against similar companies rather than judging it in isolation.

How to determine a company’s cash flow per share

Public companies typically publish financial statements that can help investors analyse cash flow. The cash flow statement is usually the main source, while the balance sheet and income statement provide supporting context. If a cash flow statement is not available, estimating cash flow from net income requires multiple adjustments, such as for non-cash items and working capital changes, and can be imprecise.

The main financial statements used to analyse cash flow are:

Balance sheet. Shows assets, liabilities and cash balances at a point in time. It provides context, but it does not show cash flows over a period.

Income statement. Shows revenue, expenses and profit or loss over a period. It helps explain performance, but profit is not the same as cash flow.

Cash flow statement. Shows cash generated and used by operating, investing and financing activities during a period. This is usually the main source for cash flow analysis.

These reports can give you an overview of a company’s financial position. Once you know the cash flow, you can divide this by the number of outstanding shares to get a cash flow per share figure. This figure is one input analysts may use when assessing a company alongside other measures.