Shareholder Return Cash Coverage ratio
Welcome to the Value Sense Blog, your resource for insights on the stock market! At Value Sense, we focus on intrinsic value tools and offer stock ideas with undervalued companies. Dive into our research products and learn more about our unique approach at valuesense.io.
Explore diverse stock ideas covering technology, healthcare, and commodities sectors. Our insights are crafted to help investors spot opportunities in undervalued growth stocks, enhancing potential returns. Visit us to see evaluations and in-depth market research.
What is Shareholder Return Cash Coverage ratio?
Shareholder Return Cash Coverage ratio measures the free cash flow relative to the total shareholder returns, indicating how well the company can sustain its return policies.
How do you interpret Shareholder Return Cash Coverage ratio?
Shareholder Return Cash Coverage ratio measures the sustainability of shareholder returns relative to free cash flow. A high ratio indicates the company can maintain its return policies without financial strain.
How to Calculate Shareholder Return Cash Coverage ratio?
The ratio can be calculated by dividing the company’s free cash flow by the total amount of cash returns to shareholders (dividends and share repurchases).
Shareholder Return Cash Coverage Ratio=Free Cash Flow/Dividends Paid + Share Buybacks
where
- Free Cash Flow: Cash generated by operations after capital expenditures.
- Dividends Paid + Share Buybacks: The total cash distributed to shareholders through dividends and share repurchases.
Why is Shareholder Return Cash Coverage ratio important?
This ratio is crucial for assessing the sustainability of a company’s shareholder return policies. It provides insight into whether a company can continue rewarding shareholders without straining its cash resources or taking on additional debt, which is important for evaluating long-term financial health.
How does Shareholder Return Cash Coverage ratio benefit investors?
Investors can use this ratio to evaluate the sustainability of a company's dividends and share buyback programs. A high ratio is a positive signal, showing that the company can return value to shareholders while maintaining healthy liquidity, which is attractive for long-term investors.
Using Shareholder Return Cash Coverage ratio to Evaluate Stock Performance
A strong Shareholder Return Cash Coverage Ratio can positively influence stock performance, as it signals a company’s ability to sustain or grow its shareholder returns. Investors often favor companies with high ratios, as they indicate financial strength and lower risk of dividend cuts or reduced buybacks.
FAQ about Shareholder Return Cash Coverage ratio
What is a Good Shareholder Return Cash Coverage ratio?
A ratio above 1 is generally considered favorable, indicating the company has more than enough free cash flow to cover its shareholder returns without stretching its financial resources.
What Is the Difference Between Metric 1 and Metric 2?
Shareholder Return Cash Coverage Ratio focuses on covering shareholder returns specifically with free cash flow or available cash. Shareholder Return Coverage Ratio may include broader sources of coverage such as net income or overall earnings, not just cash.
Is it bad to have a negative Shareholder Return Cash Coverage ratio?
A low ratio indicates that the company might struggle to sustain its shareholder returns with cash flow alone, potentially requiring borrowing or cutting returns in the future.
What Causes Shareholder Return Cash Coverage ratio to Increase?
The ratio can increase if the company improves its free cash flow through higher earnings, better operational efficiency, or reduced capital expenditures. It can also rise if the company reduces dividends or share buybacks.
What are the Limitations of Shareholder Return Cash Coverage ratio?
This ratio does not account for future cash needs or debt obligations. A company may have sufficient free cash flow now, but future financial challenges or significant investments could strain its ability to sustain shareholder returns.
When should I not use Shareholder Return Cash Coverage ratio?
The ratio is less useful for companies that do not regularly engage in share buybacks or large dividend payments. It is also less relevant for early-stage companies that prioritize reinvesting cash over returning it to shareholders.
How does Shareholder Return Cash Coverage ratio compare across industries?
The ratio tends to vary significantly across industries. Companies in capital-intensive sectors may have lower ratios due to higher reinvestment needs, while companies with strong cash flow generation, such as those in technology or consumer staples, may exhibit higher ratios.
Explore More Investment Opportunities
For investors seeking undervalued companies with high fundamental quality, our analytics team provides curated stock lists:
📌 50 Undervalued Stocks (Best overall value plays for 2025)
📌 50 Undervalued Dividend Stocks (For income-focused investors)
📌 50 Undervalued Growth Stocks (High-growth potential with strong fundamentals)
🔍 Check out these stocks on the Value Sense platform for free!