Two Methods: Cash Flow Calculator AND Calculating Cash Flow
Cash flow is the incoming and outgoing stream of money in a business.
If you're starting your own company or doing a job in accounting or
finance, you can get an idea how to calculate cash flow by understanding
these methods. Cash flows are divided into three categories:
operational, financing, and investment.
Accounting Demystified by Leita A. Hart, CPA.
http://www.investorwords.com/5443/cash_flows_from_financing_activities.html
http://www.investorwords.com/5444/cash_flows_from_investing_activities.html
http://www.investopedia.com/articles/analyst/03/122203.asp
http://www.accountingformanagement.com/preparation_of_statement_of_cash_flows.htm
Calculating Cash Flow
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1Figure out the net cash flow from operating activities. This section tells you how much cash was generated from daily operations or delivery of goods and services.
- Cash inflows from operations include cash received from sale of goods or services, collection of receivables from customers, cash interest and cash dividends received.
- Cash outflows from operations include cash payments for goods purchased, cash payments for notes to suppliers, cash payments to employees, cash paid for taxes, fees, and fines, and interest paid to creditors.
- Using the indirect method of cash flow from operations will reflect net income and increase or changes in assets and liabilities such as inventory, receivables, and payables, and less depreciation and amortization
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2Figure out the net cash flow from financing activities. This category shows you how much cash was generated from debt or equity financing. These are cash spent or received from stocks, bonds and other securities.
- Cash inflows from financing activities include cash proceeds from sale of stock, cash received from borrowing, cash received from contributions and investment income.
- Cash outflows from financing activities include cash paid towards principal on debt, cash paid to reacquire equity or buying back shares of stock, and dividend payments to shareholders.
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3Figure out the net cash flow from investing activities. This section details how much cash your entity made from investments such as purchase of stocks or bonds of another entity.
- Cash inflows from investing activities include collected principal on notes, cash proceeds from sale of equity such as stocks or bonds, and cash received from sale of assets or physical property such as plants and equipment.
- Cash outflows from investing activities include cash paid to acquire debt, cash payments to buy equity interest, and disbursements made to purchase assets or physical property such as plants and equipment.
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4Get the ending balance of cash flow from operating, financing and investing activities. After you add the cash inflows to the beginning balance in a given period and deduct the cash outflows, you will get the ending balance. Or, you can create a "statement of cash flows." This will give you an idea how much cash is generated in a given period.
Tips
- You can either use the direct method or indirect method statement of cash flow from operating activities.
- Cash flow statements are harder to manipulate, but there are ways to make your cash flow look good such as delaying payments or payables, selling securities (e.g. notes, stocks, bonds, and certificates), and reversing charges made in prior period.
- Look for a comprehensive illustration of a cash flow statement or request an actual statement from a business. Most companies will disclose their financial statements to the public, especially to those interested in purchasing shares or stocks.
Warnings
- Operating cash flows must be compared to operating income from the net income statement. If the numbers are greatly different, it could be a problem. For example, if operating cash flow is less than net income, it might mean that you are recording sales that will never be collected in cash or there might be an error in the cash flow cycle.
Accounting Demystified by Leita A. Hart, CPA.
http://www.investorwords.com/5443/cash_flows_from_financing_activities.html
http://www.investorwords.com/5444/cash_flows_from_investing_activities.html
http://www.investopedia.com/articles/analyst/03/122203.asp
http://www.accountingformanagement.com/preparation_of_statement_of_cash_flows.htm
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