How to Calculate Cash Flow: The Ultimate Guide for Small Businesses (2023)

How to Calculate Cash Flow: 4 Formulas to Use

  1. Cash flow= cash from operating activities +(-) cash from investing activities + cash from financing activities
  2. Cash flow forecast= Initial Box + Projected Inputs – Projected Outputs
  3. operating cash flow= net income + non-cash expenses - increases in working capital
  4. Discounted Cash Flow (DCF)= sum of period cash flows ÷ (1 + discount rate) ^ period number

when it comes to youraccounting, there are a number of different formulas and statements you can use to assess your financial health. Fortunately, if you use automated accounting or accounting software, getting reports and doing financial calculations is relatively easy. But even if you use a software platform, it's important to understand how some of the key metrics that measure the health of your business are calculated, such as: B. cash flow.

Knowing how to calculate cash flow can be useful when managing your finances with a spreadsheet program like Excel, or just to get a better idea of ​​what is involved in automating your accounting software, especially since calculating your cash flow box can show where your business is. are financially located and provide insight into what you need to do to grow.

In this guide, we explain four formulas that can be used to calculate cash flow, how they work, and how you can use each result to support your business's financial decisions.


It's easiest to think of cash flow as the net amount of cash flowing in and out of a business at any one time. In this way, one directscash flow analysisIt can give you a better idea of ​​your company's liquidity, flexibility and overall financial performance.

That said, there are several ways to calculate cash flow, depending on the type of analysis you want to perform and the specific cash flow formula you are using. Here's how you can calculate cash flow four different ways:

How to calculate cash flow using a cash flow statement

First, let's see how cash flow is calculated in the most common way: using acash flow statement, also called the statement of cash flows. The cash flow statement shows the flow of cash in and out of your business over a period of time and is one of the three main calculations in business accounting.

To calculate cash flow this way, use the following formula:

money from ongoing operations +(-)CAshes from investment activity +(-)CAshes from financing activities +Bopening cash balance = miDetermine cash balance

First, it's important to know that this cash flow formula uses information from both your income statement and your balance show the sources of cash inflows and outflows for a given period.

So from these statements you can extract the following and plug the data into the above formula:

  • operational activity:Money generated or used to run your business's daily operations.
  • investment activity:Money used to invest in assets such as stocks, bonds, equipment or other tangible assets, and money generated from the sale of those assets.
  • financing activity: Cash generated by loans or equity contributions by owners and payments to reduce loan balances or pay distributions or dividends to shareholders or owners.

Let's see an example:Company A has annual profits of $125,000 but only $5,000 in the bank at the end of the year. We can use the cash flow formula to get a better idea of ​​why this happens and to illustrate the difference between flow x profit🇧🇷 As you will see in the following table:

Cash from ongoing business activities:75.000 $ +(-)Investment activities box:45.000 $+(-)Financing activities box35.000 $+Opening balance:10.000 $=Final balance:5.000 $

How to Calculate Cash Flow: The Ultimate Guide for Small Businesses (1)

More specifically, although Company A was profitable, at the end of the year it still had not received $75,000 from its customers and owed $25,000 to its suppliers. These non-cash transactions result in basic cash income of only $75,000 for the period. They also used $45,000 to buy new equipment and the owner picked up $35,000 in a raffle from the company, which only had $5,000 in the bank at the end of the year.

Therefore, using our cash flow formula to create this explanation shows how Company A manages its cash and, specifically, what types of activities contribute to cash inflows and outflows. By evaluating this statement, Company A can determine what it needs to do to increase its cash flow and grow its business.

Thus, learning how to calculate cash flow by preparing a cash flow statement is an essential part of managing your business finances.

Other than that, most accounting or bookkeeping software platforms have a way to generate this report automatically. However, if you want to calculate your own cash flow statement, you can get started with our free flow modelto help you with your analysis.

How to Calculate Cash Flow Using a Cash Flow Forecast

While creating a cash flow statement with the proper formula is perhaps the most common way to calculate cash flow, it is not the only way. While the statement of cash flows shows your company's liquidity status at a given point in time, a statement of cash flowspredictionbe able to helpYour business to predict what your cash balance will be in the future.

This report can help you determine whether your business will be able to meet its financial obligations by considering current cash on hand and adding or subtracting expected future cash inflows and outflows. A cash flow forecast is a great financial calculator because it looks into the future and can help you make decisions about the future, like iIndication if it is a good time to consider an investment or apply for financingbusiness loans, cash flow loans, real estate sales or investors.

With that in mind, you can calculate future cash flow as follows:

You start with your current cash balance and add the amount of cash you expect to have during the forecast period. This could be customer money, loan funds, or investor money.

Then subtract the expected cash outflows for the period, including things like unpaid vendor bills, loan payments, payroll, and other fixed expenses that need to be paid during the period. A cash flow forecast is typically reported for a specific time period, such as a week, month, or quarter.

The cash flow formula for the forecast looks like this:

Initial Cash + Projected Inputs – Projected Outputs = Final Cash

To illustrate, let's look at the example shown in the following table: Company A wants to buy a new $25,000 machine to increase production to meet customer demand and must decide whether to finance the purchase or pay in cash. In both cases, the bank requires them to have a balance of $15,000 in their account at all times. The owner knows how to calculate cash flow and has done an analysis of expected cash inflows and outflows over the next six weeks.

As you can see, using the formula: Initial capital:$ 20.000 +Expected inputs:35.000 $– Estimated departures:$ 34,985 =Final money:$ 20.015—You can forecast the ending cash balance for each week.

How to Calculate Cash Flow: The Ultimate Guide for Small Businesses (2)So overall, this prediction suggests a few things:

  • In the second week, the cash balance is expected to fall below the bank's required minimum balance of $15,000, so the homeowner can postpone withdrawing $1,000 to the third week if there is excess cash.
  • The final balance at the end of the sixth week is $33,915, which is only $18,915 more than the required minimum balance, so there is not enough money left over to buy the equipment.

Since Company A knows how to calculate and forecast cash flow, it determines that to purchase the machine in the next six weeks, it must seek debt financing for at least a portion of the purchase to meet the minimum required to reach the point of balance. your other financial obligations.

As you can see, a cash flow formula like the one used in a cash flow forecast can be crucial in helping you make your day to day decisions.corporate finance🇧🇷 This can help you plan when to spend money and be much more aware of where and when your money is going.

How to calculate cash flow from operations

So, in addition to calculating cash flow and creating a cash flow forecast, it pays to understand how operating cash flow is calculated. Operating cash flow is the amount of cash generated by a company's regular operations over a given period of time. It is used to determine exactly how much cash a company will have available to cover operating expenses in a given period of time.

The formula for calculating cash flow from operations is as follows:

Operating cash flow = net income + non-cash expenses - working capital increases

Therefore (and as illustrated in the chart below), to calculate operating cash flow, you would start at the bottom with net income.admission test🇧🇷 All non-monetary items are added to your net income, such as: B. Depreciation, share-based payments and deferred taxes. Once you have that number, you would deduct the changes in working capital. This includes changes in inventories, increases in accounts receivable and increases in liabilities.

As you can see, net income:100.000 $ +Non-monetary expenses:85.000 $– Increase in working capital:$ 135.000 =Operating cash flow:50.000 $.

How to Calculate Cash Flow: The Ultimate Guide for Small Businesses (3)

With this calculation, you can get a better idea of ​​what your day-to-day cash flow looks like. This can be used to help you plan for the future and can also be useful information to show investors or lenders when they are trying to get financed.

How to Calculate Discounted Cash Flow

Finally, the last cash flow calculation that is important to understand is discounted cash flow, or DCF.

DCF is a metric used to determine a company's value based on its cash flow. In general, DCF is a little more complex to understand than other cash flow formulas. Other than that, however, there are three components of discounted cash flow:

  • cash flow in the period: This value represents the free cash payouts an investor receives for owning a stock in a given time period.
  • discount rate: The discount rate is a firm's weighted average cost of capital. Represents the required rate of return that investors expect from an investment in a company.
  • The period number: Since the cash flow is associated with a specific period, the period number represents a year, quarter, or month for which you are trying to find the discounted cash flow.

Taking these components into account, the discounted cash flow formula is as follows:

DCF = sum of period cash flow ÷ (1 + discount rate) ^ period number

In other words, the DCF is the sum of each period's cash flow divided by one, plus the discount rate raised to the power of the period number.

Due to the complexity of calculating the discounted cash flow and using it tocompany rating, it is often helpful to work with an accountant or valuation professional to perform this type of analysis. Typically, this type of cash flow calculation is used to determine the value of a business, which is important when trying to sell your business, attract investors, or determine ownership percentages.

the end result

Ultimately, anyone can learn to calculate cash flow using these different formulas. Depending on what you want to learn or test, you may want to use the formula to calculate operating cash flow or create a cash flow forecast.

Ultimately, while it's important to have a basic understanding of how cash flow is calculated, cash flow management can be tricky. Therefore, it is extremely useful to use the resources that are available to you. First, organizing your finances through an accounting platform or accounting software can not only help you manage your finances, but can alsohelp you create a cash flow statement or cash flow forecast.

In addition, you will also find many articles, calculators and templates to help you create a cash flow statement or cash flow forecast.US Small Business Administration website, and you can also visit thePUNCTUATIONSite to read informative articles and find a mentor to help you with your cash flow analysis.

Finally, you can always seek the advice and services of a professional, such as a business accountant or accountant. These professionals can help you calculate your cash flow, keep your books, and answer any questions you may have about your company's finances.

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