Per Share Basis
What it is:
Per share basis is a carefully scrutinized metric that is often used as a barometer to gauge a company's profitability per unit of shareholder ownership. In many cases, accounting changes, and restatements, but is a little harder to manipulate.
How it works/Example:
For example, cash flow that is allocated to each share of common stock. Because the number of shares outstanding can fluctuate, a weighted average is typically used.
The formula for cash flow per share is:
Cash Flow Per Share = (Cash Flow - Preferred Dividends)/Shares Outstanding
Let's assume that during the fourth quarter, Company XYZ reported cash flow of $4 million and preferred dividends of $500,000. This is higher than the third quarter, when Company XYZ reported cash flow of $3 million and preferred dividends of $100,000.
Now, an increase in cash flow seems like a good thing. But when you look at the information on a per share basis, the conclusion changes a little. You see, during the third quarter, the company had a total of 8 million shares outstanding; this increased to 10 million shares outstanding. So for the third quarter, the cash flow was $2,900,000 and the cash flow per share was:
$2,900,000/8 million = $0.3625
In the fourth quarter, the cash flow per share was:
$3,500,000/10 million shares = $0.35
As you can see, the company generated more in the fourth quarter, but on a per share basis, it actually made less per share.
It is important to that "cash flow" can come from several measures (EBITDA, , cash from operations, etc.), and thus it is best for analysts and investors to understand which measure is going into the cash flow per share calculation.
Why it matters:
Per share basis is a measure of a company's financial performance per share outstanding.