Definition:

The 10-year Operating Cash Flow per Share Growth Rate measures the annualized growth rate of a company's operating cash flow per share over a ten-year period. It provides insight into how effectively a company is generating cash from its operations relative to its number of shares outstanding over a long-term horizon.

Formula:

Operating Cash Flow per Share Growth Rate = [(Operating Cash Flow per Share at End of Period / Operating Cash Flow per Share at Start of Period) ^ (1/10)] - 1

How to use the metric:

Investors and analysts use this metric to assess a company's ability to generate cash over time, which is crucial for sustaining operations, paying dividends, and funding growth. A consistent and strong growth rate may indicate a healthy and potentially undervalued company.

Limitations:

This metric may not account for short-term fluctuations or recent changes in a company's operations or market conditions. It also does not consider external factors such as economic downturns or industry disruptions that might affect cash flow. Additionally, it assumes that past performance is indicative of future results, which may not always be the case.

Applies to:

This metric is particularly useful in industries with stable cash flow patterns, such as utilities, consumer staples, and mature technology companies, where long-term cash generation is a key indicator of financial health.

Doesn't apply to:

Industries with highly volatile cash flows, such as startups, biotech, or cyclical industries like mining and oil, may not find this metric as useful. In these sectors, cash flow can be unpredictable due to factors like regulatory changes, market demand shifts, or commodity price fluctuations.

Summary:

The 10-year Operating Cash Flow per Share Growth Rate is a valuable tool for evaluating a company's long-term cash generation capability relative to its share count. While it provides insights into financial health and operational efficiency, it should be used alongside other metrics and qualitative factors to make informed investment decisions.