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Monday, October 27, 2014

Cash Earnings Per Share

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Cash Earnings Per Share

·         Cash Earnings Per Share considers cash flow generated by a company on per share basis. It is different from earnings per share, which looks at net income or profit of a company on per share basis. Cash EPS is calculated by adding all the non-cash transactions like depreciation, amortization, deferred tax and intangibles like royalty to net income of the company and then divide it by total number of shares.

A non-cash expense is an expense that is reported in the income statement, but there was no actual cash outflow from the company during the period.

How to interpret cash earnings per share

It shows company's ability to clear off debt, pay dividends and perform other transactions. Higher cash earnings per share means that company has posted strong annual earnings growth over the years and vice-versa.

Formula

Cash earnings per share = Net profit+ (Depreciation, amortization, deferred tax and intangibles like royalty)/Weighted average of outstanding shares

Example

Assume net profit is Rs. 75 crore, depreciation Rs 15 crore, amortization Rs 5 crore, deferred tax Rs 3 crore and intangibles Rs 2 crore. Number of equity shares: 20 crore Cash earnings per share = 100/20 = 5



 

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