Definition:

The 5-year Free Cash Flow per Share Growth Rate measures the annualized rate of growth in a company's free cash flow per share over a five-year period. This metric helps investors understand how effectively a company is generating cash relative to its share count over time.

Formula:

((FCF per Share at End of Period / FCF per Share at Start of Period) ^ (1/5)) - 1

How to use the metric:

Investors use this metric to assess a company's ability to generate cash flow on a per-share basis, which can indicate financial health and potential for future growth. A higher growth rate suggests that the company is improving its cash-generating efficiency, which can be a positive signal for investors.

Limitations:

This metric may not account for one-time events or changes in capital structure that could affect free cash flow. It also assumes consistent growth, which may not be realistic in volatile industries. Additionally, it does not consider the quality of earnings or cash flow.

Applies to:

This metric works best in industries with stable cash flow patterns, such as utilities, consumer staples, and mature technology companies, where consistent cash generation is a key indicator of financial health.

Doesn't apply to:

It may not be as applicable to industries with highly volatile cash flows, such as startups, biotech, or cyclical industries like mining and oil, where cash flow can fluctuate significantly due to external factors.

Summary:

The 5-year Free Cash Flow per Share Growth Rate is a useful metric for evaluating a company's cash-generating efficiency on a per-share basis over a five-year period. While it provides insights into financial health and growth potential, it should be used in conjunction with other metrics to account for industry-specific factors and potential anomalies in cash flow data.