What it means
Ordinary earnings per share divides net profit by the number of shares. Cash EPS does the same arithmetic but starts from cash generated by operations, so items that reduce profit without any money leaving the bank are added back.
The reason this matters is that accounting profit and cash are not the same thing. A company can report a thin profit while collecting plenty of cash, or report a healthy profit while its bank balance shrinks, and cash EPS shows which situation you are looking at.
The most common construction is operating cash flow from the cash flow statement divided by the weighted average number of shares. Some analysts instead build it from net profit plus depreciation, amortisation (the same write-down idea applied to intangible assets such as software or brand names) and share-based payment.
Both routes are accepted, so always check which one a report has used. Cash EPS is particularly useful in capital-heavy industries such as telecoms, shipping, property and mining, where depreciation charges are large and lumpy.
It also helps when comparing a company that grew by acquisition, and therefore carries big intangible amortisation charges, with an organic competitor that does not. The nuance is that cash EPS flatters companies that need to keep spending on equipment, because depreciation is a real economic cost even though no cash moves in that particular year.
Treat it as one lens alongside ordinary EPS and free cash flow per share, never as a replacement for either.
In practice
Real-world examples.
Example
A telecoms operator reports net profit of $12,000,000 and depreciation and amortisation of $40,000,000 across 50,000,000 shares. Reported EPS is $0.24 while cash EPS is $1.04. The board uses the cash figure when explaining to shareholders why it can still afford a dividend.
Example
A software company books $9,000,000 of share-based payment, a cost settled in shares rather than money. Net profit of $6,000,000 across 30,000,000 shares gives EPS of $0.20, but cash EPS of $0.50. Analysts argue about whether adding the charge back is fair, since it does dilute existing owners.
Example
A packaging manufacturer that bought a rival carries $6,000,000 of annual amortisation on acquired customer contracts. On 12,000,000 shares, net profit of $9,000,000 gives EPS of $0.75 against cash EPS of $1.25. The finance director quotes both figures so the acquisition accounting is transparent.
Formula
Calculation
Cash EPS = Operating cash flow / Weighted average shares outstanding.
Take a regional broadband operator. Net profit for the year is $48,000,000. Adding back depreciation and amortisation of $30,000,000 and share-based payment of $9,000,000, then subtracting a $3,000,000 increase in working capital, gives operating cash flow of $84,000,000 ($48,000,000 + $30,000,000 + $9,000,000 - $3,000,000). The weighted average share count is 40,000,000.
Cash EPS = $84,000,000 / 40,000,000 = $2.10 per share.
Ordinary EPS = $48,000,000 / 40,000,000 = $1.20 per share.
Cash EPS is 1.75 times reported EPS, which tells you depreciation is doing heavy lifting in the profit figure. At a share price of $31.50, the price to cash earnings multiple is 15 ($31.50 / $2.10) while the price to earnings multiple is 26.25 ($31.50 / $1.20). The shares look far less expensive on a cash basis.Case study
Seen in the real world.
Northvale Logistics is an illustrative haulage business, invented here purely to show the idea. Its fleet of trucks and depots produced a depreciation charge of $11,000,000 in a year when net profit came in at just $4,000,000. On 10,000,000 shares, reported EPS was $0.40, and a trade newspaper described the year as barely profitable.
The finance director published cash EPS of $1.50, calculated as $4,000,000 plus $11,000,000 divided by 10,000,000 shares. That figure explained how the company could refinance its debt and keep paying a $0.30 dividend despite the weak headline profit.
The chairman was careful to add a caveat in the annual report. Those trucks will genuinely need replacing, so the depreciation charge is a real cost deferred rather than a cost avoided, and cash EPS should be read alongside the fleet replacement plan.
Watch out
Common mistakes.
- Treating cash EPS as a better version of EPS in every industry. In an asset-light consultancy with almost no depreciation, the two figures barely differ and the extra calculation adds nothing.
- Adding back depreciation and then forgetting that equipment eventually has to be replaced. Cash EPS ignores that future capital spending entirely.
- Comparing one company's cash EPS built from operating cash flow with another built from profit plus depreciation. The two methods give different answers and are not comparable.
Questions
People also ask.
Is cash EPS the same as free cash flow per share?
No, free cash flow per share subtracts capital expenditure first, so it is a stricter and usually lower number.
Which share count should be used?
Use the weighted average number of shares for the period, the same figure the company uses for reported EPS, so the two are directly comparable.
Do accounting standards require companies to publish cash EPS?
No, it is a non-standard measure, so companies choose whether to show it and must reconcile it to a reported figure when they do.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%