Do you have difficulty understanding a financial term? Check unfamiliar terms by first letter in our glossary below.

# Free Cash Flow Per Share (FCFPS)

## Exploring the Significance of FCF Per Share in Financial Analysis

Compact Explanation

Free Cash Flow per Share (FCFPS) measures how much free cash is available per outstanding share.

Introduction

The Free Cash Flow Per Share (FCFPS) ratio is a crucial financial metric for investors and analysts who wish to evaluate a company's profitability and liquidity from an equity holder's perspective.

This glossary page from SimFin offers a comprehensive exploration of the FCFPS ratio to help users get a firm grasp of its implications in financial analysis.

Definition

Free Cash Flow Per Share (FCFPS) is a financial ratio that measures the amount of free cash flow (FCF) attributable to each share of common stock. This ratio indicates the financial flexibility of a company and its ability to pay dividends, repurchase shares, and facilitate the growth of the company.

Context and Use

The FCFPS ratio is commonly used in investment analysis and valuation. Investors consider it an essential metric because it reflects the actual cash that can be distributed to shareholders after all expenses and reinvestments have been made.

Detailed Explanation

Free Cash Flow (FCF) is the cash generated by a company's operations that is available for distribution among all the securities holders of an enterprise. It is calculated as Cash from Operations minus Capital Expenditures.

FCFPS is calculated by dividing the free cash flow by the total number of outstanding shares.

Formula: FCFPS = FCF / Total number of shares outstanding

An increase in the FCFPS ratio over time is generally viewed positively as it indicates an improvement in the company's ability to generate cash.

Examples

For example, if Company A has a free cash flow of \$1 million and there are 500,000 shares of common stock outstanding, then the FCFPS for Company A would be \$2 (\$1 million / 500,000).

Related Terms

1. Free Cash Flow (FCF)

2. Earnings Per Share (EPS)

3. Price to Earnings (P/E) Ratio

4. Dividend Yield

1. What is a good Free Cash Flow Per Share ratio? There is no one-size-fits-all answer to this because a "good" FCFPS can vary widely between industries, company sizes, and growth stages. However, a higher FCFPS is generally more attractive to investors as it indicates a company has more cash available for shareholders.

2. What does it mean if the FCFPS ratio is negative? A negative FCFPS ratio suggests that the company is spending more cash than it's generating, which could be a cause for concern. This could be a result of high capital expenditure or poor cash management.

3. How is FCFPS different from Earnings Per Share (EPS)? EPS is based on net income, which includes non-cash items like depreciation and amortization, whereas FCFPS is based on free cash flow, which reflects actual cash generated by the company's operations.

4. Can FCFPS be used to forecast future performance? While FCFPS can give some insight into a company's potential future performance, it should not be used as the sole indicator. It's crucial to consider other factors such as market conditions, industry trends, and company-specific factors.

5. How can a company improve its FCFPS ratio? A company can improve its FCFPS ratio by increasing its free cash flow, reducing the number of outstanding shares, or a combination of both.

6. Is FCFPS used in dividend policy decisions? Yes, companies often consider their FCFPS when deciding dividend payments, as it gives an indication of how much cash is available to distribute to shareholders.

Key Takeaways

Understanding FCFPS is crucial for investors, as it indicates a company's profitability and liquidity from a shareholder's perspective. A higher FCFPS is generally viewed as a positive sign of financial health and performance.

Conclusion

The Free Cash Flow Per Share ratio is an essential financial tool in investment analysis. It provides valuable insights into a company's financial stability and potential returns to shareholders. Understanding this ratio can help investors make more informed decisions and achieve their investment goals.

Disclaimer: This content is designed for educational and informational purposes only. It should not be construed as investment advice or a recommendation of any specific security, strategy, or investment product. You should consult with a professional financial advisor before making any investment decisions. Investing in securities involves risk, including the possible loss of principal. Past performance is not indicative of future results.