Is Free Cash better than dividend per share (DPS).

This study examines between Earnings per Share and Free Cash to determine the best investment option.

Dividend is a payment made by public corporations to the shareholders from the profits. Dividend per Share (DPS) refers to the sum or dividends of declared dividends for every ordinary share issued (Brigham & Daves, 2012). Dividends are a proportion of company’s profits reported by the business to the shareholders since shareholders are owners of the company and deserve a share of company’s profit. When a corporation decides to issue a dividend to the shareholders they allocate a fixed amount per share with shareholders getting a fraction of dividend proportionate to the shares, they hold (Brigham & Daves, 2012). Some corporations issue fixed sum of dividends to the shareholders and transfer the other undistributed profit amount is maintained as retained earnings. Investing in companies that issue shareholders with dividend gives the investors an opportunity to generate a steady return through income from the stock purchases (Ehrhardt & Brigham, 2010). However, the company should examine the pay-out ratio to ensure the earnings of the company are capable of supporting the current dividend payment amount. Investing in a corporation with the dividend per share implies the shareholders have the higher chance of increasing income, but the company has a problem with managing its operations due to inadequacy of cash (Ehrhardt & Brigham, 2010)

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Free cash flow refer to pay a firm has generated for its shareholders after deducting expenses investing in its growth. It measures the amount of cash per share a company makes after accounting for capital costs such as buildings and equipment (Westbrook, 2014, p.111). It is equivalent to total cash flow less capital spending. It is essential in a corporation because it plans the financial health of the company and gets rid of all accounting suppositions built into earnings.

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