Operating cash flow per share is a metric that investors use to measure the performance of a company's operating cash flow. It is calculated by dividing a company's operating cash flow by the number of shares outstanding. This metric is important because it gives investors an idea of how much cash flow each share generates. In this blog post, we will discuss how to calculate this important metric and why it matters for investors!
What is operating cash flow per share, and why is it important to shareholders and investors?
Operating cash flow per share is a metric used to evaluate a company's operating cash flow. Operating cash flow is the cash generated from a company's day-to-day operations. This includes all of the cash coming in from sales, minus all of the money spent on things like inventory, expenses, and taxes. Operating cash flow per share is calculated by dividing a company's operating cash flow by the number of shares outstanding.
This metric is important because it gives investors an idea of how much cash flow each share generates. For example, if a company has 100 outstanding shares and generates $1,000 in operating cash flow, then each share would have an operating cash flow of $10. This is important to know because it can give you an idea of how well a company is performing. If a company has shares that generate a lot of cash flow, then it is likely doing well. On the other hand, if a company's shares have very little cash flow, then it might be in trouble.
Now that we know what operating cash flow per share is and why it matters, let's discuss how to calculate it.
How do you calculate this metric, and what factors influence the calculation results?
As we mentioned earlier, operating cash flow per share is calculated by dividing a company's operating cash flow by the number of shares outstanding. The Operating Cash Flow (OCF) can be found on a company's cash flow statement. The number of shares outstanding can be found in a company's financial statements.
There are a few things to keep in mind when calculating this metric. First, you need to make sure that you are using the operating cash flow from the cash flow statement. This is different from the net income on the income statement. The operating cash flow is the cash generated from a company's day-to-day operations, while the net income includes things like interest and depreciation. Second, you need to ensure that you are using the number of shares outstanding. Again, this is different from the number of shares that a company has issued. The number of shares outstanding is the number of shares that are actually owned by investors.
Operating cash flow per share formula
The operating cash flow per share formula is as follows:
Operating Cash Flow Per Share = Operating Cash Flow/Number of Shares Outstanding.
For example, Apple Inc. (AAPL) had $122.1 billion in operating cash flow and 16.2 billion shares outstanding at the end of December 2021. This gives us an operating cash flow per share of $7.53.
Operating cash flow per share in Excel and Google Sheets
Instead of manually calculating the operating cash flow per share, you can use a tool like Wisesheets to calculate these important metrics from hundreds of companies at the time.
As you can see, you can use Wisesheets to compare stocks across metrics like this one, and hundreds of others like ROIC, PE ratio, etc.
This allows you to spot investment opportunities faster.
Operating cash flow per share versus EPS
Operating cash flow per share is often confused with earnings per share (EPS). EPS is an important metric, but it's not the same as operating cash flow per share. EPS measures a company's profitability, while operating cash flow per share measures a company's ability to generate cash flow from its operations.
While both metrics are important, they measure different things. Operating cash flow per share is a more comprehensive metric because it takes into account all of the cash that a company generates from its operations. On the other hand, EPS only measures a portion of a company's profitability.
Operating cash flow per share is a more useful metric when you are trying to evaluate a company's overall health. It is an excellent metric to use when you are trying to decide between different companies. EPS is a more useful metric when you are trying to evaluate a company's profitability.
Are there any potential drawbacks to using this metric, and if so, how can they be mitigated or avoided altogether?
One potential drawback of using this metric is that it does not take into account the size of a company. For example, a company with 100 shares outstanding and $10 in operating cash flow would have an operating cash flow per share of $0.10. On the other hand, a company with 1,000 shares outstanding and $100 in operating cash flow would also have an operating cash flow per share of $0.10. However, the larger company is actually generating 10 times more cash flow than the smaller company.
To avoid this potential drawback, you can compare companies of similar size when using this metric or comparing the total operating cash flow. This will help to ensure that you are comparing apples to apples and not apples to oranges.
Another potential drawback of using this metric is that it does not take into account the company's debt. As a result, a company with a lot of debt may have a low operating cash flow per share even though it is actually generating a lot of cash flow.
To avoid this potential drawback, you can look at the company's debt-to-equity ratio. This will give you an idea of how much debt the company has relative to its equity. If the company has a lot of debt, then you may want to be cautious about investing in it, even if it has a high operating cash flow per share.
Conclusion
Operating cash flow per share is a valuable metric that can help you make better business decisions and investments. So be sure to keep it in mind when evaluating companies. There are some potential drawbacks to using this metric, but they can be avoided by comparing companies of similar size and looking at the company's debt-to-equity ratio.
To your investment success!
