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Cash flow

How to Calculate Cash Flow

Accounting calculations reveal a lot about a business’s financial health. Knowing the formulas attached to these essential calculations can provide small businesses with a comprehensive understanding of their finances. Take cash flow; if a business owner knows how much money is coming into and out of the company at all times, they can efficiently manage their expenses and revenue and improve profits and future cash flow.

This article will cover five critical cash flow formulas that can help your small business manage its finances. If you’re interested in learning more accounting measures, try using these common accounting formulas next time your small business requires financial calculations.

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5 Important Cash Flow Formulas

Your small business can use three standard formulas to calculate cash flow, which is the amount of cash flowing into and out of the company. Cash flow, net cash flow, and cash flow forecasting all provide various snippets of information that can help your business plan its finances for the lows and highs of cash flow.

To obtain the relevant figures for these calculations, you will need your business’s financial statements for the previous period, including the cash flow statement, balance sheet, and income statement.

Cash flow formula

To calculate cash flow, you first must know the figures surrounding your business’ three types of cash flow:

  • Operating Cash Flow: Cash created by or used for the day-to-day operating activities of your business
  • Investing Cash Flow: The cash created by or used for the investment or sale of assets and fixed assets
  • Financing Cash Flow: Cash created by or used for capital, or the owner or shareholders of the company

To obtain these numbers, look to your cash flow statement . This statement of cash flow depicts the money coming into and out of the business through the three cash flow channels. Accounting software like QuickBooks Online can help your business generate its cash flow statement for this purpose.

Using that information, plug it into the cash flow formula as follows:

Cash flow = Cash from Operating activities + Cash from Investing activities + cash from financing activities

Net cash flow formula

The net cash flow of a business is the difference between the inflow and outflow of cash within a period. Net cash flow is different from net income, as net income covers all expenses, not just operating activities.

Calculate net cash flow to determine the company’s cash balance and compare it to past periods to assess the current financial position of the business. There are two ways to use the net cash flow formula, which are as follows,

Net Cash Flow = Total cash inflows – total cash outflows


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

Cash flow forecast formula

Cash flow forecasting is the projection of your business’s cash flow state in the future. Estimating future cash flow will help companies to prepare their cash on hand to cover upcoming expenses. Cash flow forecasting for the upcoming month or period is a great way to create an action plan for your business.

This calculation illustrates the cash you plan to bring in and spend over the next thirty or ninety days within your business. The figure will vary depending on your payment processing, whether you typically take cash payments or offer to invoice customers. Cash payments provide you with money immediately, whereas invoicing causes a delay in payment.

With this in mind, the cash flow forecast formula is as follows:

Cash Flow Forecast = Beginning Cash + Projected Inflows – Projected Outflows = Ending Cash

How to Calculate Operating Cash Flow

Operating cash flow refers to the cash generated by or used for the business’s everyday operating activities. The revenue generated by the selling of goods or services, the payments of operating expenses such as rent and utilities- all of this makes up the cash flow from operations of your business.

Operating cash flow formula

Knowing what the cash flow from operations is can help a business determine how best to use the cash for short term and long term situations. The operating cash flow formula is as follows:

Operating Cash Flow = Net Income + Non-Cash Expenses – Increase in Working Capital

Cash flow ratio

The cash flow ratio tells a business if it is generating enough cash to pay for its current liabilities, affecting the overall financial health of the company. This information helps investors determine whether or not they would want to invest in your business.

How to Calculate Free Cash Flow

Free cash flow, or FCF, refers to the money not tied up in the business- it is the cash left over after all operating expenses, and capital expenditures have been paid. Free cash flow impacts businesses as the greater the flow, the more money you will have to reinvest back into the business.

Free cash flow formula

The FCF formula shows whether or not the company can grow its cash by investing, so businesses seek to have a high figure. To determine free cash flow, you will first need to find a few key figures from your business’s income statement and balance sheet. These are:

  • Net Income: The remaining income after the total revenue or sales has covered all of the business’s expenses- net income is found on the income statement.
  • Depreciation/Amortization: The measurement of an asset’s value decreasing over time and the method of breaking down the cost of such assets over time, found on the income statement.
  • Working Capital: Refers to the difference between your business’s assets and liabilities, the cash left over for operating activities, found on the balance sheet.
  • Capital Expenditure: The money spent on the business’s fixed assets, such as real estate and equipment, found on the cash flow statement.


With these elements in mind, the free cash flow formula is as follows:

Free Cash Flow = Net Income + Depreciation/Amortization – Change in Working Capital – Capital Expenditure


Free Cash Flow = Operating Cash Flow – Capital Expenditures

When a company’s free cash flow steadily increases, it typically signals that increased earnings will follow. Many investors look to the free cash flow figure of a business to determine if it is worth investing in.

Calculating Cash Flow with QuickBooks Online

Calculating cash flow and knowing how much cash you have access to at any one point is a key piece of knowledge your business should know at all times. Consider using cash flow software to help your business calculate and project the future flow of money to prepare accordingly.

QuickBooks Online can be part of that preparation, as the software can generate cash flow statements and projections, along with a whole slew of other accounting features, such as creating your business’s balance sheet, income statement, with financial statements reporting.

Why not try it free today and learn the advantages of having quality accounting software on your side?

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