REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
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Cash flow
per share
Cash flow
can be regarded as the volume of cash, generated by the trading
operations of the business, out of which the ordinary dividend
must be funded.
Cash flow
is derived from the Cash Flow statement required by Financial
Reporting Standard 1 (FRS1). The starting point for calculating
cash flow in Company REFS is the figure appearing at
the top of the published Cash Flow statement, namely the ‘net
cash inflow from operating activities’.
This, in
turn, is based on the operating profit shown in the Profit &
Loss account. It is adjusted, first, for items of revenue or
cost which do not involve cash movement, such as depreciation
or provisions, and second, for any non-operating cash flow which
may arise, for example, when stocks and debtors are reduced,
or when creditors are increased.
Interest
actually received is then added, whilst interest, taxation,
and preference dividends paid out are deducted. These adjustments
are made in terms of cash receipts and payments; accruals and
prepayments are eliminated. The share of associates’ profits
is restated in terms of dividends received, while the share
of minority interests in profit is restated in terms of dividends
paid out.
The resulting
figure is the cash flow used in Company REFS, which is
then divided by the weighted average number of ordinary shares
in issue during the period to calculate cash flow per share.
The calculation
of cash-flow can be summarised as follows:
OPERATING
PROFIT (AS REPORTED)
+ DEPRECIATION
CHARGES
+ ASSET WRITE
DOWNS
+ NET INCREASE
IN PROVISIONS
- SHARE OF
ASSOCIATES’ PROFITS (NET)
- PROFITS
(NET OF LOSSES) ON ASSET DISPOSALS
- CURRENCY
TRANSLATION PROFITS (NET)
- NET INCREASE
IN STOCKS
- NET INCREASE
IN DEBTORS
+ NET INCREASE
IN CREDITORS
NET CASH
INFLOW FROM OPERATING ACTIVITIES
(AS REPORTED)
ADD: RETURNS
ON INVESTMENTS
+ INTEREST
RECEIVED
+ DIVIDENDS
RECEIVED FROM ASSOCIATES
+ OTHER INVESTMENT
RECEIPTS
DEDUCT: SERVICING
OF FINANCE (EXCEPT DIVIDENDS PAID TO ORDINARY
SHAREHOLDERS)
- INTEREST
PAID
- DIVIDENDS
PAID TO PREFERENCE SHAREHOLDERS
- DIVIDENDS
PAID TO MINORITY INTERESTS
DEDUCT:
TAXATION PAID =
CASH FLOW
The per
share calculation is then made as follows:
CASH FLOW
(£)
-----------------------------------------
X 100p = CASH FLOW PER SHARE (p)
WEIGHTED
AVERAGE SHARES IN ISSUE
Cash flow
per share can be subject to adjustment for a variety of reasons
falling into the following three categories:
share
capital changes which give rise to share price adjustment
factors accounting periods which are greater or less than
12 months in duration requiring annualisation.
Notional
diulution.
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