Definition:

The 10-year Free Cash Flow per Share Growth Rate measures the annualized rate at which a company's free cash flow per share has grown over a ten-year period. It provides insight into the company's ability to generate cash flow relative to its shares outstanding over a long-term horizon.

Formula:

((FCF per Share in Year 10 / FCF per Share in Year 1) ^ (1/10)) - 1

How to use the metric:

Investors and analysts use this metric to assess a company's long-term financial health and its ability to generate cash flow. A consistent growth rate can indicate a company's potential for sustainable growth and its capacity to return value to shareholders through dividends or reinvestment.

Limitations:

The metric relies on historical data, which may not accurately predict future performance. It can be skewed by one-time events or changes in accounting practices. Additionally, it does not account for changes in capital structure or market conditions over the period.

Applies to:

This metric is most applicable to industries with stable cash flow generation, such as utilities, consumer staples, and mature technology companies, where long-term cash flow trends are more predictable.

Doesn't apply to:

Industries with volatile cash flows, such as startups, biotech, or cyclical industries like mining and oil, may not find this metric as useful due to the unpredictability and variability in cash flow generation.

Summary:

The 10-year Free Cash Flow per Share Growth Rate is a valuable tool for evaluating a company's long-term cash flow growth relative to its shares. While it provides insights into financial health and growth potential, it should be used in conjunction with other metrics and qualitative analysis to account for its limitations and industry-specific factors.