Calculate and Interpret Free Cash Flow per Share

By Stock Research Pro • October 4th, 2009

Free cash flow per share is a measure of the financial strength and flexibility of a company that is calculated by dividing the company’s free cash flow by the number of shares it has outstanding. Free cash flow per share is a useful metric for investors to track as it helps to understand the company’s ability to grow the business, pay down debt, offer dividends to shareholders and more. Many investors also track it as a means of tracking future share price direction. Generally speaking, when a company’s free cash flow is rising, the share price will follow.


What is Free Cash Flow?

Free Cash Flow (FCF) is the cash that a company has produced after it’s paid its expenses and is therefore a measure of profitability from company operations. To calculate FCF, you subtract the company’s capital expenditures from its cash flow from operations. Ample free cash flow is important to a company as it enables the pursuit of expansion, dividend payments, and other means of increasing shareholder value. A lack of FCF can leave a company in a position where it must forego opportunities for expansion, reconsider dividends payments and potentially increase the debt load it carries.


Calculate Free Cash Flow per Share

The formula for free cash flow per share can be written as:


FCF/Share = Free Cash Flow / Number of Shares Outstanding

Click here to go to Yahoo! Finance and collect the data you’ll need for this calculation. Enter the stock symbol in the Get Quotes window and click Key Statistics under Company.

Like the Price/Earnings (P/E), Price/Earnings to Growth (PEG), and other valuation measures, free cash flow per share can help investors understand where the market values the company. A lower measure relative to industry competitors can indicate an undervalued stock, while a higher measure can mean that the stock is currently overvalued.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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