Net Cash Flow Formula

Formula to Calculate Net Cash Flow of a Company

Net Cash flow formula calculates the net cash flow in the company during the period, and it is calculated by adding the net Cash flow from operating activities, net Cash flow from Investing activities and net Cash flow from financing activities or the same can also be calculated by subtracting the cash payments of the company during the period from the cash receipts.

Net Cash Flow = Total Cash Inflows – Total Cash Outflows
Net Cash Flow Formula

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For eg:
Source: Net Cash Flow Formula (wallstreetmojo.com)

OR

Net Cash Flow = Net Cash Flow from Operating Activities + Net Cash Flow from Investing Activities + Net Cash Flow from Financing Activities

Examples

You can download this Net Cash Flow Formula Excel Template here – Net Cash Flow Formula Excel Template

Example #1

Company WYZ has been operating in the manufacturing business for ages. The accountant of company WYZ wants to calculate net cash flow for the year ended. The company reported $34 million as the opening cash balance. It was further reported that the firm earned $100 million from operating activities, $-50 million from investing activities, and $30 million from financing activities.

Based on the above information, you require to calculate the closing cash balance of the firm.

Solution:

Use below given data for the calculation of net cash flow.

  • Net Cash Flow from Operating Activities: 100000000
  • Net Cash Flow from Investing Activities: -50000000
  • Net Cash Flow from Financing Activities: 30000000

Calculation of net cash flow can be done as follows:

Example 1.1

This is a simple example of calculating cash flow. We can use the above equation to calculate the same.

Net Cash Flow = $100 million – $50 million + $30 million

Net Cash Flow will be –

Net Cash Flow Formula Example 1.2

Net Cash Flow = $80 million

The Net cash flow for the firm is $80 million.

The opening cash balance of the firm is $34 million, and if we add net cash flow, which is $80 million, we will get the closing balance as $114 million.

Example #2

Mr. M is the sole proprietor of M & M Associates. The turnover of the firm is less than $2.5 million, and hence as per tax rules, they are not required to maintain books of accounts and can directly show 50% as net profit. However, Mr. M wants to know how much cash flowCash FlowCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more occurred during the year as it wants to borrow a loan from a bank for future requirements.

Below is the summary which was prepared by the accountant for loan appraisal.

Example 2

The firm is looking to have 80,000 cash in hand, and the same will be met by loan and cash in hand. You are required to calculate the amount of loan that will be required by M&M Associates.

Solution:

We are given a summary of financial informationFinancial InformationFinancial Information refers to the summarized data of monetary transactions that is helpful to investors in understanding company’s profitability, their assets, and growth prospects. Financial Data about individuals like past Months Bank Statement, Tax return receipts helps banks to understand customer’s credit quality, repayment capacity etc.read more. In order to calculate the loan amount, we will first calculate the available cash in hand, and for the same, we need to calculate the net cash flow.

Calculation of total cash inflows will be –

Net Cash Flow Formula Example 2.1

Calculation of total cash outflows will be –

Example 2.2

Calculation of net cash flow can be done as follows:

Net Cash Flow Formula Example 2.3

Net Cash Flows = 55,000 – 23,000

The Net Cash Flow will be –

Example 2.4

Net Cash Flow = 32000

Hence, the requirement of the loan amount will be 80,000 – 32000, which is 48,000.

Example #3

Dynamic Label Inc. has been preparing the cash flow statementPreparing The Cash Flow StatementStatement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities.read more to know which activity gave them positive cash flow and which activity gave them negative cash flow. They have gathered below information from the cash account, and now they want to segregate the cash flow in operating, financing, and investing activities.

ParticularsAmount
Cash Flow From Debtors157856
Cash Flow from Creditors-123445
Income Tax Paid-9877
Sold Plant & Machinery53278
Loans Repaid-56778
Buildings Purchased-75000

You require to calculate the net cash flow using a direct method.

Solution:

We will first categories the sources and applications of funds in the three activities which are Operating, financing, and investing.

Example 3.1

Now we will just add the cash flow and deduct the cash outflow and arrived at respective cash flow from that activity per below:

Net Cash Flow Formula Example 3.2.0

Net Cash Flow = -21722 + 22213 + 24534

Net Cash Flow will be –

Example 3.3

Net Cash Flow = 25025

Net Cash Flow Calculator

You can use this net cash flow calculator.

Total Cash Inflows
Total Cash Outflows
Net Cash Flow
 

Net Cash Flow = Total Cash Inflows Total Cash Outflows
0 0 = 0

Relevance and Uses

Net cash flow, as mentioned earlier, is an important concept and is the fuel that shall aids firms in developing new products, buy-back its stock, expansion plans, pay dividends to shareholders, or repaying their loans or debt. It is what allows the firms to perform their daily routine business smoothly. This is the reason why some person values the net cash flow even more than any other measure of finance, which also includes EPS that is earnings per share. The big drivers of the net cash flows are the Revenues or sales and expenses.

Recommended Articles

This has been a guide to Net Cash Flow Formula. Here we discuss how to calculate net cash flow with practical examples and downloadable excel template. You can learn more about financing from the following articles –