Cash per Share

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What is Cash per Share?

Cash per Share calculates the cash and cash equivalents held by the company divided by the number of outstanding shares, reflecting liquidity per share.

How do you interpret Cash per Share?

Cash per Share reflects liquidity on a per-share basis, showing how much cash is available to meet short-term obligations or for reinvestment.

How to Calculate Cash per Share?

Cash per Share is calculated by dividing the total cash and cash equivalents by the number of outstanding shares.

Cash per Share = Total Cash & Cash Equivalents / Number of Outstanding Shares

where

• Total Cash & Cash Equivalents include all of the company's cash, short-term investments, and marketable securities.
• Outstanding Shares refers to the total number of shares held by all shareholders.

Why is Cash per Share important?

Cash per Share is important because it reflects the liquidity of a company on a per-share basis. It helps investors understand how much cash is available for reinvestment, paying off debt, or paying dividends. Companies with high cash reserves may have more flexibility in navigating economic downturns or making acquisitions.

How does Cash per Share benefit investors?

Cash per Share provides investors with insight into a company’s liquidity and financial stability. Companies with a higher Cash per Share may be better positioned to withstand financial distress or to capitalize on growth opportunities. It also helps assess whether the company can sustain or increase dividends.

Using Cash per Share to Evaluate Stock Performance

Cash per Share can be combined with profitability and valuation metrics like EPS and the Price-to-Earnings ratio to form a comprehensive picture of the company’s financial health. A company with both strong earnings and a healthy cash reserve may be more attractive to investors, especially in times of economic uncertainty.

FAQ about Cash per Share

What is a Good Cash per Share?

A "good" Cash per Share value depends on the industry and the company’s capital needs. Higher Cash per Share values can be seen as a positive in industries where liquidity is important for operations or growth. However, in capital-intensive industries, companies might hold less cash in favor of investing in assets.

What Is the Difference Between Metric 1 and Metric 2?

Cash per Share focuses on a company’s liquid assets (cash and equivalents) relative to outstanding shares, while Book Value per Share reflects the total net assets of the company (equity) after accounting for liabilities. Book Value includes all assets, both liquid and illiquid, while Cash per Share focuses strictly on cash.

Is it bad to have a negative Cash per Share?

A low Cash per Share may indicate that a company has limited liquidity, which could be a risk in times of financial stress. However, companies with significant earnings or access to credit might not require a high cash reserve, so it depends on the company’s overall financial structure.

What Causes Cash per Share to Increase?

Cash per Share can increase if:

The company generates more cash from its operations.
There is a reduction in the number of outstanding shares (e.g., through share buybacks).
The company reduces its capital expenditures or operating costs.

What are the Limitations of Cash per Share?

Cash per Share does not consider a company’s liabilities or its long-term investments. It also does not indicate how effectively the company is utilizing its cash reserves. For companies with significant intangible assets or those in industries with high capital requirements, Cash per Share might provide a limited view of overall financial health.

When should I not use Cash per Share?

Cash per Share is less useful for companies in industries where cash reserves are less relevant, such as those that invest heavily in fixed assets or rely on other forms of liquidity. It may also be less relevant for highly profitable companies that reinvest their earnings rather than holding large cash reserves.

How does Cash per Share compare across industries?

In industries that require substantial liquidity, such as financial services or technology, Cash per Share may be a key indicator of a company’s health. In contrast, in industries like utilities or manufacturing, where long-term assets are more critical, other metrics like Book Value per Share or Return on Assets might be more useful.

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