How to calculate cash flow


One of the most important aspects of managing cash flow is understanding how to calculate it. There are three main formulas that can help you calculate cash flow: free cash flow formula, operating cash flow formula and cash flow forecast. Each formula serves a different purpose. 

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  • Free cash flow refers to the resources available for distribution among all the stakeholders in the company. It shows you how much capital you have to reinvest in the business – such as purchasing new equipment, expanding your store, or investing in a new product for your company.
  • The operating cash flow formula provides an at-a-glance view of the day-to-day cash flow within your business.
  • The cash flow forecast provides a future look at your cash flow in the coming month, quarter or year.
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All three of these formulas are essential to knowing how much money is flowing in and out of your business at any given time: 

  • Net income + Depreciation ÷ Amortization – Change in working capital – Capital expenditure = Free cash flow
  • Depreciation + Operating income – Taxes + Change in working capital = Operating cash flow
  • Beginning cash + Projected inflows – Projected outflows = Ending cash = Cash flow forecast
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