Free Cash Flow per Share
Free Cash Flow per Share (FCF per Share) is a financial performance metric that shows how much free cash flow is available to each outstanding share of a company’s stock. This measure is significant for investors as it provides insight into a company’s financial health and its ability to generate cash, which could be used for dividends, share buybacks, or reinvestment in the business.
Free Cash Flow per Share is calculated as follows:
\(\text{Free Cash Flow per Share} = \frac{\text{Free Cash Flow – Preferred Dividends}}{\text{Number of Outstanding Shares}} \)
- Free Cash Flow (FCF): This is the cash generated by the company’s operations after deducting capital expenditures. It represents the cash available for discretionary purposes.
- Preferred dividends: These are the dividends that are paid to preferred shareholders. If the company does not have any preferred shares, then this value would be zero.
- Number of Outstanding Shares: This is the total number of shares that are currently held by the company’s shareholders.
The FCF per Share calculation provides the amount of free cash flow allocated to each share of common stock. The higher the value, the more cash is available to provide value to shareholders, which makes the company potentially more attractive to investors.
Example of Free Cash Flow per Share
Imagine a company, ABC Corporation, which has the following financial information for the last fiscal year:
- Free Cash Flow (FCF): $500,000
- Preferred Dividends: $50,000
- Number of Outstanding Shares: 200,000
We want to calculate the Free Cash Flow per Share (FCF per Share). Here’s how we would do that:
\(\text{Free Cash Flow per Share} = \frac{\text{Free Cash Flow – Preferred Dividends}}{\text{Number of Outstanding Shares}} \)
Substituting the given values:
FCF per Share = ($500,000 – $50,000) / 200,000 = $2.25
\(\text{Free Cash Flow per Share} = \frac{\$500,000 – \$50,000}{200,000} = \$2.25 \)
So, ABC Corporation’s Free Cash Flow per Share for the last fiscal year is $2.25. This means that each share of ABC Corporation theoretically has $2.25 of the company’s free cash flow attributable to it.
Investors would consider this information along with other financial metrics and indicators to evaluate the company’s performance, financial health, and potential for future growth.
