Free cash flow per share is a financial metric that indicates the amount of cash generated by a company's operations after accounting for its capital expenditures (capex), interest expenses, and taxes. It's calculated by dividing the free cash flow (FCF) of the company by the total number of outstanding shares.
The formula for calculating free cash flow per share is as follows:
Free Cash Flow per Share = (Free Cash Flow) / (Total Number of Outstanding Shares)
Free Cash Flow (FCF) = Operating Cash Flow - Capital Expenditures
Operating Cash Flow represents the cash generated or used by a company's core operating activities, and Capital Expenditures (Capex) represent the amount of money a company spends on acquiring or maintaining its long-term assets, such as equipment, buildings, and other investments.
By dividing the free cash flow by the number of outstanding shares, you get an idea of how much cash the company is generating per share. This metric can be useful for investors because it provides insight into the company's ability to generate cash from its operations that can be used for various purposes, such as reinvesting in the business, paying dividends, reducing debt, or pursuing growth opportunities.
Investors often compare the free cash flow per share of a company to its stock price to assess its valuation and potential investment attractiveness. Higher free cash flow per share can suggest that a company is in a better position to reward its shareholders through dividends or share buybacks, as it indicates the company's ability to generate excess cash beyond its operational and capital needs.
Cash flow is the movement of money into or out of a business. It is the net amount of cash and cash-equivalents being transferred into and out of a business. Read more...
The Price to Free Cash Flow ratio is a valuation metric that compares a company's market price per share to its free cash flow per share. Read more...