Cash Per Share: Definition, Calculation, and Practical Insights

Cash per share (CPS) is a pivotal financial metric utilized in evaluating a company’s financial health. This ratio gauges the amount of cash available on a per-share basis, derived by dividing the total cash on a company’s balance sheet, including easily liquidated short-term investments, by the number of shares outstanding.

Cash per share serves as a critical indicator of a company’s liquidity, portraying its readily available assets. This includes cash on hand, distinct from funds acquired through loans or other financing activities. Elevated levels of cash per share instill confidence in shareholders, signaling the company’s ability to handle unforeseen circumstances, reinvest in the business, or distribute capital to investors.

However, the strategic hoarding of excessive cash can be a two-edged sword. It may indicate potential capital inefficiency, reflecting the company’s hesitancy to reinvest in its operations due to economic uncertainties or operational efficiencies. While cash provides financial flexibility, holding onto it for prolonged periods may result in missed growth opportunities.

Research suggests that an abundance of cash can be nearly as detrimental to future returns as having insufficient cash reserves.

Cash per share is frequently considered a more reliable metric compared to earnings per share (EPS). While EPS measures the portion of a company’s profit allocated to each outstanding share of common stock, a high EPS may be enticing to investors. However, if insufficient revenues are transformed into liquid currency, it could jeopardize the company’s long-term success. Additionally, EPS figures are more susceptible to manipulation than cash per share.

Yes, cash per share is widely accepted in financial analysis. It provides a comprehensive view of a company’s liquidity and is considered a reliable indicator of financial health.

A high cash per share value indicates that a company has a substantial amount of readily available cash, reassuring investors about its financial strength and flexibility.

Yes, holding excessive cash can be detrimental as it may indicate potential capital inefficiency or a reluctance to pursue strategic initiatives, leading to missed growth opportunities.

Cash per share directly reflects a company’s available cash, offering a clearer picture of its financial health, while EPS measures the portion of profit allocated to each outstanding share and can be more easily manipulated.