A guide to calculating cash flow for your business

Cash flow is how much money moves in and out of your business during a certain period of time. Typically it’s calculated on a monthly, quarterly or annual basis. Cash flow calculations can help you understand your company’s current health and achieve financial stability by predicting upcoming shifts in your earnings and expenses.

There are different types of cash flow calculations you can use to derive specific insights about your business’s finances. Take a closer look at these formulas and their uses with this guide.

Key takeaways

• Cash flow refers to how much money moves in and out of your business at a given time.
• Different types of calculations are used to calculate cash flow including net cash flow, operating cash flow, cash flow from investing and cash flow from financing.
• Calculating cash flow can help you make important decisions and better understand where your business stands financially.

To calculate cash flow, you typically subtract business expenses from business profits. However, the formula will vary based on the type of cash flow you’re factoring for. The information needed to populate these formulas typically comes from a cash flow statement—a financial document used in business accounting that shows how cash is moving into and out of your business over a specific period of time.

Net cash flow is a key metric that demonstrates how well your business is performing financially. Net cash flow can be positive or negative. 

Here’s how to calculate net cash flow:

Net cash flow = Total cash inflows − Total cash outflows

For example, if your company has $250,000 cash inflow and $150,000 cash outflow, the calculation would be as follows: $250,000 (cash inflow) − $150,000 (cash outflow) = $100,000 (net cash flow).

To determine your company’s inflows and outflows, you can use operating cash flow, investing activity cash flow and financing activity cash flow:

Net cash flow = Cash from business operations +/− Cash from investments +/− Cash from financing + Initial cash balance

Operating cash flow (OCF) is the money earned from or put toward running your business’s daily operations. It can accurately calculate how successful your business is in generating cash flow to cover general operating expenses.

Here’s how to calculate cash flow from operating activities:

Operating cash flow = Net income + Depreciation and amortization − Change in working capital

For example, if your company has a net income of $300,000, $15,000 in depreciation and amortization, and a $40,000 change in working capital, the calculation would be as follows: $300,000 (net income) + $15,000 (depreciation and amortization) − $40,000 (change in working capital) = $275,000 OCF.

Cash flow from investing (CFI) refers to money put into investments and assets like securities, bonds and equipment, and money earned from selling these assets.

Here’s how to calculate cash flow from investing:

Cash flow from investing activities = Purchase or sale of property and equipment + Purchase or sale of other businesses + Purchase or sale of marketable securities

Some examples of investing activities include purchasing property plant and equipment (PP&E), funds from selling PP&E and funds from selling other businesses.

Cash flow from financing activities (CFF) refers to money from loans or owner capital contributions and money spent to reduce loan balances or pay shareholders or owners. In other words, it shows how well a company’s mix of debt and equity can finance its overall operations.

Here’s how to calculate cash flow from financing

Cash flows from financing = Cash inflows from issuing equity − (Cash paid as dividends − Repurchase of debt and equity)

Some examples of financing activities include repaying an existing loan, repayment of equity and receiving funds from issuing debt. 

Depending on how your business is using cash flow calculations, you may explore other formulas:

• Free cash flow = Operating cash flow − Capital expenditures
• Cash flow forecast = Beginning cash + Projected inflows − Projected outflows
• Net present value = Today’s value of expected future cash flows − Today’s value of invested cash

Inputs in these formulas may require additional information from certain financial statements like an income statement or balance sheet. 

Calculating cash flow can give you a more accurate picture of your business’s financial health and identify areas of shortfalls or surpluses. For example, negative cash flow could encourage you to reduce business expenses. On the other hand, positive cash flow indicates your revenue exceeds your expenses, so it could be a good time to invest in growth opportunities.

By regularly reviewing cash flow, you can have a better handle on when to conserve cash or spend money to enhance output or expand your business. One way to track your expenses and better manage your cash flow is with a business credit card. Compare business credit cards from Capital One to find one with features and perks that best speak to your business needs.