Cash flow: formula, types, how to calculate cash flow

    Денежный поток
    Cash flow

    Company success is usually judged by profit. However, there is another indicator that can tell a lot about how the company is doing - cash flow, which is one of the most important criteria for the success of European companies.

    Another name for this term, which can often be found in economic articles and reviews is cache flow. It allows you to really assess what means the company operates, and often does not coincide with the figures presented in other reporting documents, such as a balance sheet or statement of financial results.

    In this article, we will examine in detail what cash flows are, what they show in the company's activities, what they are and how to calculate them correctly.


    What is cash flow

    Что такое кэш флоу
    What is the cash cache

    Cash flow (cash cache, English cash flow ) - an economic indicator that reflects the amount of cash transferred within the enterprise in general or in separate structural units. It is worth noting that we are talking about both cash and placed on the accounts of the company.

    When calculating the cash flow, both profit received as a result of any actions of the company and all its costs are taken into account.

    Flow cache is a “scalable” indicator, as it can be used as one of the indicators of profitability not only of the company as a whole, but also of a separate unit, the whole business sphere or, conversely, a single project or even a product.

    Typically, cash flow is calculated for the past financial year, but in some cases, especially in the first stages of a company’s launch, it can be done quarterly or as needed, for example, when a project cannot even achieve self-sufficiency after planned for this period. Cash flow allows you to build both long-term and short-term development strategies.

    What cash flow shows

    Значение денежного потока
    Cash flow value

    Cash flow data is of particular value to investors, since the document allows you to see how much of the total amount of funds remained at the disposal of the company, and which went to cover costs.

    Proceeding from this, positive cash flows (indicate cash inflows) and negative (represent cash outflows) are distinguished. Accordingly, based on these data, investors can determine how profitable it is to invest in such a company.

    Positive cash flow

    Positive cash flow is the funds that go into the company, i.e. the influx of money into the enterprise.

    The following income items form a positive cash cache:

    • Revenue from the sale of goods;
    • Revenues from the provision of services;
    • Part of the profit if the company participates in a common business with other enterprises;
    • Dividends and interest payments;
    • Investor deposits;
    • Royalty-free assistance from charitable organizations;
    • The difference from exchange rates.

    Negative cash flow

    Отрицательный денежный поток
    Negative cash flow

    Negative cash flow is the money spent enterprise to cover various costs and expenses, i.e. outflow of money from the company.

    The following types of payments form a negative cash flow:

    • Cost of production;
    • Salary;
    • Depreciation of equipment;
    • Research;
    • Improving working conditions;
    • Household expenses;
    • Taxes.

    What is net cash flow

    Чистый денежный поток
    Net cash flow

    Net cash flow (English net cash flow ) is the difference between positive and negative cash flow, i.e. between the receipt of funds in the company and the necessary expenses. Net cash flow is one of the most important indicators, as it reflects the company's well-being and determines the interest of investors in it.

    Net cash flow allows investors to determine how profitable investments are in a particular company:

    • If cash flow is above zero, then we can talk about investment attractiveness;
    • If cash flow is below zero or equal to it, investments in this company are considered high-risk.
    Accordingly, the higher the cash flow rate, the more investment attractive the company is.

    The net flow cache of any company is formed from the following main activities:

    1. Operating - funds received or used in the company's main activities. At the same time, positive cash flow is money received from the sale of goods or the provision of services, advances to customers; negative - remuneration of employees, cost of goods, taxes.
    2. Investment - funds associated with previously made investments. The inflow is made from the income from the sale of intangible assets, and the outflow is due to the acquisition of investment objects and the expansion of the company's investment activities.
    3. Financial - these are funds designed to expand operational and investment activities. The inflow of money occurs through the receipt of loans and credits and the issue of securities , the outflow - through the repayment of loans and borrowings, and the payment of dividends.

    Classification and types of cash flows

    Виды кэш флоу
    Types of cash cache

    Cash flow allows you to evaluate the correctness of maintaining activities of the company and see the potential prospects of its development. In this regard, there are several types of cash flow:

    According to the balance: positive and negative. The first shows the company's income (cash inflow), the second - its costs (cash outflow).

    By type of economic activity: operational (direct income and expenses from main activities), financial (sale of long-term assets and acquisition of property for the purpose of obtaining long-term profit ) and investment (taking and repayment of loans and borrowings).

    By management level: cache of the entire company, individual divisions and branches, individual projects and operations.

    In relation to the company: internal (funds for operations within the company) and external (for transactions with counterparties and partners).

    According to the calculation method: cumulative (the total amount of positive and negative cash flows) and net (the difference between positive and negative cash cache).

    In terms of sufficiency: excess (when the inflow of funds significantly exceeds the needs of the company, ie when income is much higher than expenses) and deficit (outflow of funds significantly exceeds their influx into the company).

    By period: short-term (income and expenses of the company for a period of up to one year) and long-term (inflow and outflow of money for a period of more than one year).

    In terms of importance for generating financial statements: priority (income and expenses, in which a large amount of cash is involved) and secondary (insignificant expenses and income that almost does not affect the results of the formation of the final cash flow).

    At the time: current (cash flow on the current settlement day) and future (approximate cash flow on a certain day in the future).

    If we consider the classification of cash flow according to international accounting standards, there are three types:

    1. Cash flow from operating activities - cash inflow from the sale of goods or provision services, as well as labor costs for company employees and contractors.
    2. Cash flow for investment activities - all income and expenses associated with any investments of the company - both incoming and outgoing.
    3. Cash flow for financial activities - funds associated with raising capital, as well as loans and borrowings.

    Classification of cash flows into types allows accounting, analysis and planning of company finances.

    How to calculate net cash flow

    Порядок расчета денежного потока
    Cash flow calculation procedure

    How to calculate cash flow:

    1. Define the period for which the calculation will be made.
    2. Define the purpose for which the flow cache calculation is necessary.
    3. Highlight items of income and calculate their total value.
    4. Select expense items and calculate their total value.
    5. Use one of the cash flow calculation formulas.

    First of all, it is worth saying that cash flow is calculated in relation to certain time periods.

    As a rule, at the very beginning of the company’s work, the forecasted cache flow is calculated monthly, starting from the second year - quarterly, then annually.

    For the calculation, actual data are taken at the beginning or at the end of the zero segment.

    Different types of prices can be used to calculate the cache cache:

    • Current, i.e. actual on the day of calculation without taking into account inflation indicators;
    • Forecasts - the forecasted inflation rate multiplied by current prices is used for calculation;
    • Deflated - forecast prices are used, divided by the core inflation index.

    As a rule, cash flow is calculated in the currency in which the company operates.

    The main methods for calculating a company’s flow cache are direct and indirect. The first is used more often, since the main accounting reporting documents are used in the calculation. As a result, you can see in what “status" the cash flow of the company is: inflow (when income exceeds expenses) or outflow (when expenses prevail over income).

    Cash flow formula

    Расчет денежного потока по формуле
    Cash flow calculation using the formula

    Depending on the purpose for which calculation and how accurate it should be, there are three cash flow formulas and, accordingly, three calculation methods.

    The first method. It takes into account only two indicators: net cash flow received from the main activity, and main expenses.


    FCF = ChDP - ZP,


    • FCF - cash flow;
    • NPV - net cash flow;
    • ЗП - the main costs of production.

    The second method. Based on its results, it is possible to determine the reasons that led to the change in cash flow. Formula:

    FCF = EBITDA - NP - ZP - PKI,


    • EBITDA - profit before deduction of interest, taxes, depreciation and amortization expenses;
    • NP - income tax;
    • PKI - changes in working capital (NWC, Net working capital change).

    The third method. Used to make forecasts.

    FCF = EBIT * (1-tax) + FOR - ЗП - ИОК,


    • FOR - depreciation costs.

    An example of calculating the cache cache

    How the cache cache is calculated using a real example can be seen in the video below:

    Flow cache calculation example

    Read also:

    Net profit: how to calculate, formula, examples

    Margin: concept, basic types, difference from marginality. How to calculate the margin

    What is GDP: explain in simple words

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