Operating Cash Flow per Share

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What is Operating Cash Flow per Share?

Operating Cash Flow per Share measures the cash generated from core operations on a per-share basis, indicating the cash earnings attributable to each share.

How do you interpret Operating Cash Flow per Share?

Operating Cash Flow per Share measures cash generation from core operations, indicating the company’s ability to sustain its operations and fund growth.

How to Calculate Operating Cash Flow per Share?

Operating Cash Flow per Share is calculated by dividing the company’s total operating cash flow by the number of outstanding shares.

OCFPS=Operating Cash Flow​/Number of Outstanding Shares

where

• Operating Cash Flow is the cash generated from a company’s operations, found on the cash flow statement.
• Number of Outstanding Shares is the total number of common shares available in the market.

Why is Operating Cash Flow per Share important?

Operating Cash Flow per Share is important because it highlights the amount of cash a company is generating per share from its core operations. Unlike earnings metrics, OCFPS focuses purely on cash, providing a more accurate picture of financial health by eliminating non-cash items like depreciation and amortization.

How does Operating Cash Flow per Share benefit investors?

OCFPS benefits investors by offering insight into how effectively a company generates cash. It is particularly useful in evaluating whether a company can sustain dividends, make capital investments, or reduce debt without requiring external financing. Investors often prefer companies with strong and growing OCFPS.

Using Operating Cash Flow per Share to Evaluate Stock Performance

OCFPS is often used by investors to evaluate whether a company can sustain its operations and continue growing without relying heavily on external funding. Increasing OCFPS over time may indicate a strong operational foundation, and this metric is often compared to the stock price to determine if the company is undervalued or overvalued.

FAQ about Operating Cash Flow per Share

What is a Good Operating Cash Flow per Share?

A "good" OCFPS depends on the industry and company-specific factors, such as capital intensity and cash conversion cycle. In general, a higher OCFPS compared to peers within the same industry is considered a positive indicator of financial health and efficiency.

What Is the Difference Between Metric 1 and Metric 2?

Operating Cash Flow per Share (OCFPS) focuses solely on cash generated from core operations. Free Cash Flow per Share (FCFPS) accounts for cash left after operating expenses and capital expenditures, which provides a more comprehensive view of the cash available for dividends or reinvestment.

OCFPS is more focused on operational efficiency, while FCFPS indicates the flexibility of a company to utilize its cash after investments in growth.

Is it bad to have a negative Operating Cash Flow per Share?

Yes, a negative OCFPS suggests that the company is not generating enough cash from its operations to cover its expenses, which could indicate financial distress or inefficiency. However, this may be acceptable in cases where a company is investing heavily in growth, particularly in early-stage or capital-intensive industries.

What Causes Operating Cash Flow per Share to Increase?

OCFPS can increase due to:

Higher revenues
Better cost management and operational efficiency
Reduction in working capital needs
Lower operating expenses
Increased customer payments or improvements in the cash collection cycle

What are the Limitations of Operating Cash Flow per Share?

Limitations of OCFPS include:

It doesn’t account for capital expenditures, which are critical for understanding the full cash flow picture.
OCFPS can be volatile due to changes in working capital.
It may not be useful for comparing companies in different industries with varying capital requirements and cash flow structures.

When should I not use Operating Cash Flow per Share?

OCFPS should not be used in isolation for companies with high capital expenditure requirements, as it doesn’t account for cash needed to maintain or grow operations. Additionally, it is not ideal for comparing companies across different industries, as cash flow needs and generation can vary significantly.

How does Operating Cash Flow per Share compare across industries?

OCFPS varies widely across industries depending on the nature of the business. Capital-intensive industries, like manufacturing or utilities, may have lower OCFPS due to higher operating costs, whereas service-based or technology companies might exhibit higher OCFPS because of lower fixed costs and higher operational efficiency.

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