Definition:

Free Cash Flow Per Share (FCFPS) is a financial metric that measures the amount of cash a company generates that is available for distribution to its shareholders on a per-share basis. It indicates the company's ability to generate cash after accounting for capital expenditures necessary to maintain or expand its asset base.

Formula:

FCFPS = (Free Cash Flow) / (Number of Outstanding Shares)

How to use the metric:

Investors use FCFPS to assess a company's financial health and its ability to generate cash that can be used for dividends, share buybacks, or reinvestment in the business. A higher FCFPS indicates a stronger financial position and potential for shareholder returns.

Limitations:

FCFPS can be volatile due to fluctuations in capital expenditures and changes in working capital. It may not provide a complete picture of a company's financial health if used in isolation, as it doesn't account for debt levels or other financial obligations.

Applies to:

FCFPS is particularly useful in capital-intensive industries such as manufacturing, utilities, and telecommunications, where significant capital expenditures are required to maintain operations.

Doesn't apply to:

This metric may be less relevant for industries with minimal capital expenditure requirements, such as software or service-based companies, where free cash flow may not be a primary indicator of financial performance.

Summary:

Free Cash Flow Per Share is a valuable metric for evaluating a company's ability to generate cash available for distribution to shareholders. While it provides insight into financial health, it should be used alongside other financial metrics to gain a comprehensive understanding of a company's performance.