Operating Cash Flow Per Share (OCFPS)

Operating Cash Flow Per Share (also known as OCFPS) is a financial metric that shows how much cash a company generates from its regular, ongoing business activities on a per-share basis. Think of it as the company's core operational earnings, but in pure cash form, divided among its owners (the shareholders). Unlike its more famous cousin, Earnings Per Share (EPS), which is based on Accrual Accounting and can be influenced by non-cash items and accounting assumptions, OCFPS provides a more direct, unfiltered look at a company's ability to generate cash. For Value Investing purists who live by the motto “cash is king,” OCFPS is a go-to metric. It strips away the accounting fluff and tells you the raw truth about how much cash is flowing into the business from its primary operations, making it an excellent tool for gauging a company's financial health and true profitability.

A company's success ultimately hinges on its ability to generate cash, not just report profits. OCFPS helps you peer behind the curtain of the Income Statement to see what's really going on.

Profits on paper can be misleading. An Income Statement includes non-cash expenses like Depreciation and Amortization, which reduce reported profits but don't actually involve a cash outlay. Furthermore, a company can report a sale and book the revenue long before the customer's cash actually arrives. This can make a company look profitable even when its bank account is dwindling. OCFPS cuts through this noise. It is derived from the Statement of Cash Flows and focuses on the actual cash received from customers minus the cash paid for operating expenses. It is the lifeblood of the business, representing the money available to:

• Reinvest in growth (new factories, research, etc.)
• Pay down debt
• Pay dividends to shareholders
• Buy back its own stock

Comparing OCFPS to Earnings Per Share (EPS) is one of the most powerful checks an investor can perform.

• The Red Flag: If a company consistently reports strong, growing EPS but its OCFPS is low, stagnant, or even negative, sound the alarm! This could mean the company is struggling to collect payments from its customers or is using aggressive accounting tactics to inflate its earnings. This divergence is a classic warning sign.
• The Hidden Gem: Conversely, a company might have mediocre EPS due to large non-cash charges (like depreciation on new equipment) but boast a very strong and growing OCFPS. This could signal a healthy, cash-generating business that the market is overlooking. These are the kinds of opportunities value investors hunt for.

Getting to grips with OCFPS isn't just for accountants. The formula is straightforward, and understanding its components is key to sound analysis.

The calculation for Operating Cash Flow Per Share is: OCFPS = (Operating Cash Flow - Preferred Dividends) / Weighted Average Common Shares Outstanding Let's break it down:

• Operating Cash Flow (OCF): This is the star of the show. You'll find this figure on a company's Statement of Cash Flows. It represents the cash generated from the company's principal revenue-producing activities.
• Preferred Dividends: These are payments made to owners of preferred stock. Since this cash isn't available to common shareholders, it must be subtracted.
• Weighted Average Common Shares Outstanding: This is the average number of shares available to the public over a given period. Using the same share count as the EPS calculation makes for a perfect apples-to-apples comparison.

A single number doesn't tell the whole story. Context is everything.

1. Look for a Positive and Growing Trend: A company should, at a minimum, have a positive OCFPS. What's even better is a stable, upward trend over the last five to ten years. This demonstrates a durable and increasingly efficient business.
2. Compare it to the Share Price: By dividing the current share price by the OCFPS, you get the Price-to-Cash-Flow (P/CF) Ratio. Like its cousin, the P/E ratio, a lower P/CF ratio can indicate that a stock is potentially undervalued relative to the cash it generates.
3. Benchmark Against Peers: How does the company's OCFPS stack up against its direct competitors? A company that generates significantly more cash per share than others in its industry likely possesses a strong Competitive Advantage.

While EPS often grabs the headlines, OCFPS is arguably a more honest measure of a company's performance. It's a powerful lie detector that reveals the true cash-generating power of a business's core operations. Always use OCFPS as a cross-check against reported earnings. If a company's profit story seems too good to be true, a quick look at its OCFPS will often give you the reality check you need. A healthy business gushes cash, and OCFPS is one of the best tools you have to see that flow on a per-share basis.