Free Cash Flow per Share
Free Cash Flow per Share (FCF per Share) is a financial metric that measures the amount of cash generated by a company that is available to be distributed among its shareholders, after accounting for operating expenses, capital expenditures, and taxes, divided by the total number of outstanding shares. It is an important indicator of a company's financial health and its ability to generate cash returns for its shareholders. This metric reflects the actual cash earnings available to shareholders after maintaining and expanding the company's asset base.
Definition: Free Cash Flow per Share (FCFPS) refers to the cash flow available to shareholders after a company has paid all its operating expenses, capital expenditures, and taxes, divided by the total number of outstanding shares. FCFPS is an important indicator for assessing a company's financial health and its ability to return value to shareholders. It reflects the actual cash earnings a company can generate for its shareholders after maintaining and expanding its asset base.
Origin: The concept of Free Cash Flow per Share originates from the calculation of Free Cash Flow (FCF). The concept of FCF became widely accepted in the 1980s as a crucial metric for evaluating a company's financial health and investment value. As investors increasingly focused on actual cash earnings, FCFPS emerged as a more refined metric.
Categories and Characteristics: FCFPS can be categorized based on different calculation methods and application scenarios.
- Basic FCFPS: This is the most common calculation method, directly dividing free cash flow by the total number of outstanding shares.
- Diluted FCFPS: This considers potential dilution factors such as convertible bonds and options, calculating FCFPS assuming all potential equity is converted into common stock.
- Reflects actual cash earnings, avoiding inflated accounting profits.
- Helps assess a company's ability to return value to shareholders.
- Can serve as an indicator of a company's financial health.
Specific Cases:
- Case 1: A company generated 50 million yuan in free cash flow in 2023, with 10 million outstanding shares. Its FCFPS is:
FCFPS = 50 million yuan / 10 million shares = 5 yuan/share. This means each share brought 5 yuan of actual cash earnings to shareholders. - Case 2: Another company generated 80 million yuan in free cash flow in 2023, with 20 million outstanding shares. Its FCFPS is:
FCFPS = 80 million yuan / 20 million shares = 4 yuan/share. Although this company has a higher total free cash flow, its FCFPS is lower due to more outstanding shares.
Common Questions:
- Question 1: How is FCFPS different from Earnings Per Share (EPS)?
Answer: FCFPS reflects the actual cash earnings generated by the company, while EPS is based on accounting profits, which may include non-cash items. - Question 2: Why is FCFPS more important than EPS?
Answer: FCFPS better reflects a company's actual cash-generating ability, avoiding inflated profits due to accounting treatments.
