How to calculate cash flow: Formulas, examples and types

Calculating cash flow—how much money moves in and out of your business over a set period—can help you understand your company’s financial health. It helps predict whether you’ll have enough cash to cover your expenses, invest in growth and remain financially stable. 

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

What you’ll learn:

• Cash flow refers to money moving in and out of your business at a given time.

• Different types of calculations are used to measure 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 informed decisions and better understand where your business stands financially.

To calculate cash flow, you typically subtract cash outflows from cash inflows. However, the formula will vary based on the type of cash flow you’re calculating.

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 moves into and out of your business over a specific period of time, such as on a monthly, quarterly or annual basis. 

Here are the different cash flow calculation formulas, along with examples of each.

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:

Total cash inflows − Total cash outflows = Net cash flow

For example, if your company has $250,000 in cash inflows and $150,000 in cash outflows, the calculation would be as follows: 

$250,000 (cash inflows) − $150,000 (cash outflows) = $100,000 (net cash flow)

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

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

Operating cash flow (OCF) is the cash earned from or used in running your business’s daily operations. It helps show how well your business generates cash to cover general operating expenses. 

There are two ways to calculate operating cash flow: the indirect method and the direct method. While both produce the same result, they differ in how cash from operations is calculated and presented. The indirect method starts with net income and incorporates adjustments for noncash items and working capital changes. The direct method lists actual cash receipts and payments, but it’s used less often than the indirect method because it requires more detailed records.

Here’s how to calculate operating cash flow using the indirect method:

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

For example, if your company has a net income of $300,000, $15,000 in depreciation and amortization, and a $40,000 increase 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 (operating cash flow)

Cash flow from investing activities (CFI) refers to cash put into investments and long-term assets—such as securities, bonds and equipment—as well as cash received from selling those assets.

Here’s how to calculate cash flow from investing:

(Cash inflows from the sale of property, plant, equipment, other businesses and marketable securities) − (Cash outflows from the purchase of property, plant, equipment, other businesses and marketable securities) = Cash flow from investing activities

Some examples of investing activities include purchasing property, plant and equipment (PP&E), as well as cash received from selling PP&E or other businesses. For example, if your company sold old machinery for $20,000 and a small investment in another company for $10,000 but purchased new equipment for $120,000 and marketable securities for $50,000, the calculation would be:

$30,000 (sold machinery and investment) − $170,000 (new equipment and marketable securities) = -$140,000 (cash flow from investing activities)

Cash flow from investing activities is -$140,000, which indicates your company invested more cash than it recovered during the reporting period.

Cash flow from financing activities (CFF) refers to cash received from business loans or owner capital contributions, as well as cash used to repay debt 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 inflows from issuing debt and equity − Cash outflows from repaying debt, repurchasing equity and paying dividends = Cash flows from financing activities

Some examples of financing activities include repaying an existing loan, repurchasing equity and receiving funds from issuing debt. Suppose your company received $100,000 from a business loan and raised $50,000 from an owner investment. Now suppose you repaid $10,000 of the loan and paid $3,000 in dividends. The financing cash flow formula would be:

$150,000 (loan and owner investment) − $13,000 (loan repayment and dividends) = $137,000 (cash flows from financing activities)

Cash flow from financing activities totaled $137,000, meaning your business raised more cash through debt and equity than it paid out during the period.

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

• Operating cash flow − Capital expenditures = Free cash flow

• Beginning cash + Projected inflows − Projected outflows = Cash flow forecast

• Present value of expected future cash flows − Initial investment = Net present value

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

Cash flow and profit go hand in hand, but they’re different. Profit shows what you earn after expenses, while cash flow focuses on the actual money coming in and going out. 

Your business can be making a profit but still have negative cash flow if customers haven’t paid invoices or money is tied up in inventory. For example, if your business makes a $10,000 sale and owes less than that in expenses but hasn’t collected payment, your profit increases—but cash flow doesn’t.

Calculating cash flow can give you a more accurate picture of your business’s financial health and help 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 that cash inflows exceed cash outflows, so it could be a good time to invest in growth opportunities.

By regularly reviewing cash flow, you can better gauge when to conserve cash or spend money to enhance output or expand your business. Knowing how to calculate different types of cash flow, like operating, investing and financing, can help you make smarter decisions and stay financially stable.

One way to track your expenses and better manage your cash flow is with a business credit card. You can see if you’re pre-approved for a Capital One business credit card before you apply—with no impact on your credit scores.