What Is Cash Per Share?
Cash per share is a financial ratio that can be calculated by tallying up a company's total cash on its balance sheet, including easy to liquidate short-term investments, and then dividing that figure by the number of shares outstanding. The resulting figure indicates the percentage of a company’s share price that's immediately accessible for spending on activities such as research and development (R&D), mergers and acquisitions (M&A), purchasing or improving assets, paying down debt, buying back shares, and making dividend payments to shareholders.
- Cash per share is the broadest measure of available cash to a business divided by the number of equity shares outstanding.
- Cash per share tells us the percentage of a company’s share price available to spend on strengthening the business, paying down debt, returning money to shareholders, and other positive campaigns.
- Paradoxically, too much cash per share can be a negative indicator of a company's health, because it may suggest an unwillingness by management to nurture forward-thinking measures.
- Cash per share is often considered a much more reliable indicator of financial health than earnings per share (EPS).
Understanding Cash Per Share
Cash per share reveals how liquid a company’s assets are. This is money that a company has on hand, as opposed to money it may source from loans or other financing activities. High levels of cash per share suggests that a company is performing well. It reassures shareholders that there is enough of a financial cushion to cover any emergencies and that the company has adequate capital with which to reinvest in the business, return money to investors, or do both.
Available cash offers a level of financial flexibility, but it can also represent a cost of capital inefficiency if a company holds onto too much of it for long periods of time.
Interestingly, holding onto lots of cash isn’t always a positive indicator. Instead, it can sometimes signal a company's unwillingness to reinvest in its own operations due to unfavorable economic conditions. In other cases, it could suggest general management efficiencies. In any case, the act of hoarding cash rather than shrewdly spending it could mean missing out on opportunities. For example, tech giant Apple Inc. (AAPL) is routinely criticized for stockpiling cash. In theory, the company’s shareholders could earn a higher rate of return if that cash was put to proactive use.
Research shows that having lots of cash is nearly as detrimental to future returns as having no cash at all.
Cash Per Share vs. Earnings Per Share (EPS)
Cash per share is often described as a significantly more reliable indicator of financial health than earnings per share (EPS), which measures a portion of a company’s profit that is allocated to each outstanding share of common stock. But although a high EPS may be tantalizing to investors, if too little revenues are transformed into liquid currency, a company's long-term success may be threatened. Furthermore, EPS figures are much easier to manipulate than cash.