What Is Per-Share Basis?
The per-share basis is a measurement used in the financial world to illustrate the quantity of something for one share of a company's stock. Such measures are used in the analysis and valuation of a company. Examples of this include the following:
- Earnings per share
- Cash flow per share
- Revenue per share
- Debt per share
Per-Share Basis Explained
The per-share basis is a closely-watched metric that can be used by investors to get a handle on a company's profitability per unit of shareholder ownership. To measure something on a per share basis, take the total quantity of whatever you are measuring and divide it by the number of outstanding shares in the company. For example, if the earnings of a company reach $2 million, and there are 4 million shares outstanding, the earnings on a per-share basis are $0.50 per share.
The per-share basis, when applied correctly, can be useful in looking at underlying factors in a company's profitability. It can also be a way of sussing out strengths or weaknesses that would otherwise be masked by only looking at overall results.
Real World Example of Cash Flow Per Share
Cash flow per share is typically one of the most important measures of profitability, as net income can vary based on different applications of accounting rules and in response to accounting changes and corporate restatements. While cash flow can come from a number of measures – including EBITDA (earnings before interest, tax, depreciation, and amortization), free cash flow, and other areas – it is overall less easily manipulated and therefore a good way to asses profitability.
- Cash flow per share = (Cash flow - Preferred dividends) / Shares outstanding
Consider a fictional eCommerce Company called SellBuy, which reported overall second-quarter cash flow growth from the first quarter. But what about on a per-share basis?
During the second quarter of 2018, SellBuy reported cash flow of $5 million and preferred dividends of $600,000, surpassing overall results in the first quarter, when it reported cash flow of $4 million and preferred dividends of $200,000. It would seem, at least on the surface, that SellBuy increased its cash flow quarter-to-quarter and had thus shown some overall financial improvement in its quarterly results.
But is that accurate when looking at what transpired on a per-share basis? Did cash flow really grow on a quarter-to-quarter basis? In this example, during the first quarter, SellBuy had a total of 8 million shares outstanding and in the second quarter, it had 10 million shares outstanding. In the first quarter, the cash flow was $3,800,000 (cash flow of $4 million - dividends of $200,000). In the second quarter, the cash flow was $4,400,000 (cash flow of $5 million - dividends of $600,000).
Using the calculation, the cash flow per share in the first quarter was as follows:
- $3,800,000/8 million shares = $0.475
The cash flow per share in the second quarter was as follows:
- $4,400,000/10 million shares = $0.44
The example shows that while SellBuy may have generated greater cash flow in the second quarter, on a cash-flow-per-share basis, it actually declined from the first quarter, due to the fact that it had more shares outstanding.