Free Cash Flow Per Share - Financial Glossary

Overview

Free cash flow per share (FCF per Share) is a profitability metric that measures the total amount of free cash flow generated by the company attributed to each individual share over a period of one year.

If a business is generating more cash flow per share than it needs to cover its operating expenses and capital expenditures, then the free cash flow per share number should increase over time. Unlike earnings per share (EPS), free cash flow per share is a measure of profitability that excludes the non-cash expenses of the income statement (like depreciation and amortization) and includes spending on equipment and assets as well as changes in working capital.

Also Known As: FCF per Share, FCF

Formula

Free Cash Flow per Share = Free Cash Flow ÷ Shares Outstanding

Divides total free cash flow by the number of shares outstanding

How to Calculate Free Cash Flow:

Free Cash Flow = Cash from Operations − Capital Expenditures

Understanding the Components:

Free Cash Flow: Total cash generated from operations minus capital expenditures—measures cash available for distribution
Shares Outstanding: Total number of shares currently held by all shareholders, including institutional investors and company insiders
FCF per Share: The amount of free cash flow attributed to each individual share, showing per-share cash generation capability

Calculation Example

Let's calculate the free cash flow per share for a company using its annual financial data:

Company ABC - Annual Financial Data:

Cash from Operations: $500 million
Capital Expenditures: $100 million
Shares Outstanding: 50 million shares

Step 1: Free Cash Flow = $500M − $100M = $400M

Step 2: FCF per Share = $400M ÷ 50M shares

= $8.00 per share

Result: Company ABC generates $8.00 of free cash flow per share. This means each share of the company is backed by $8.00 of actual cash flow that could potentially be distributed to shareholders via dividends or buybacks, used to expand operations, or to reduce debt.

How to Interpret

Free cash flow per share provides insight into a company's per-share cash generation capability. If a business generates more cash flow per share than it needs to cover its operating expenses and capital expenditures, the FCF per share number should increase over time.

General Guidelines:

Positive and Growing FCF per Share

Excellent sign. The company is generating increasing amounts of cash per share, indicating improving cash generation efficiency and growing value for each share owned.

Positive but Stable FCF per Share

Good sign. The company consistently generates cash per share, showing reliable cash generation ability even if not rapidly growing.

Declining or Negative FCF per Share

Warning sign. The company is generating less cash per share over time, or spending more on capital expenditures than it generates from operations, indicating potential financial challenges.

FCF per Share vs. Earnings per Share (EPS):

Free cash flow per share differs from earnings per share in important ways:

EPS (Earnings per Share): Accounting-based measure that includes non-cash expenses like depreciation and amortization
FCF per Share: Cash-based measure that excludes non-cash expenses but includes actual cash spending on equipment and assets, plus changes in working capital
More Reliable: FCF per share often provides a more accurate picture of actual cash generation compared to EPS, which can be influenced by accounting choices

Industry Context Matters: Capital-intensive industries (manufacturing, utilities, telecommunications) typically have lower FCF per share due to high capital expenditures. Software and service companies often show higher FCF per share with minimal capital spending requirements.

Why It Matters

Free cash flow per share is essential for investors because it provides a more accurate measure of per-share profitability than earnings per share (EPS). Unlike EPS, which is based on accounting earnings, FCF per share measures actual cash generation capability on a per-share basis.

Key Benefits:

True Cash Generation: Excludes non-cash expenses (depreciation, amortization) while including actual cash spending on equipment and assets, providing a clearer picture of real cash generation
Per-Share Value Assessment: Shows how much cash flow backs each individual share, helping investors understand the cash generation value of their ownership stake
Growth Indicator: Increasing FCF per share over time signals improving cash generation efficiency and growing per-share value
More Reliable than EPS: Less susceptible to accounting manipulations and provides a more accurate picture of profitability by focusing on actual cash flows
Includes Working Capital Changes: Accounts for changes in working capital, providing a more complete picture of cash generation than simple accounting profits
Cross-Company Comparison: Enables meaningful comparisons between companies of different sizes by normalizing cash flow to a per-share basis

Key Takeaways

Free cash flow per share measures total free cash flow attributed to each individual share over one year
Formula: FCF per Share = Free Cash Flow ÷ Shares Outstanding, where FCF = Cash from Operations − Capital Expenditures
FCF per share should increase over time if the business generates more cash than needed for operations and capital expenditures
Unlike EPS, FCF per share excludes non-cash expenses (depreciation, amortization) and includes actual cash spending on equipment and working capital changes
Provides a more reliable measure of profitability than EPS because it focuses on actual cash generation
Growing FCF per share indicates improving cash generation efficiency and growing per-share value
Capital-intensive industries typically have lower FCF per share due to high capital expenditure requirements
Also known as FCF per Share or FCF

Related Per-Share Metrics

These related metrics work with free cash flow per share to provide comprehensive per-share value analysis:

Free Cash Flow

Total cash from operations minus capital expenditures. The numerator used to calculate FCF per share—measures aggregate cash generation before dividing by shares outstanding.

Earnings Per Share (EPS)

Net income divided by shares outstanding. Accounting-based profitability measure often compared with FCF per share to assess earnings quality and cash generation.

Dividend Per Share

Total dividends paid divided by shares outstanding. FCF per share capacity determines a company's ability to sustain and grow dividend payments.

Book Value Per Share

Shareholders' equity divided by shares outstanding. Shows accounting value per share, while FCF per share shows cash generation capability per share.

Operating Cash Flow Per Share

Operating cash flow divided by shares outstanding. Shows per-share cash from operations before deducting capital expenditures.

Revenue Per Share

Total revenue divided by shares outstanding. Shows per-share sales generation, which combined with FCF per share indicates cash conversion efficiency.