# How to Calculate Cash Flow?

Cash Flow is a term that is often used in finance and economics. Cash flow present value computation is a popular topic for financial analysts and investors to understand their companies. There are many ways to compute cash flow, but looking at the cash flow statement is a great place to start. It gives you insight into how much cash flows in and out of your company in any given period. Passing this information through some simple calculations will allow you to see where there may be opportunities for your business. The formula for the present value of cash flows over some time can be represented by: C(t) = R(1+i)N-1/(1-i) – T where i is the interest rate, N is the number of years in the future, Ris the annual interest rate, T is period (in years), and C(0) = 0.

Create a spreadsheet for your calculations. Include the following information based on problems (1) through (18) as listed under “Problems” below. The column headers are Present Value, Time, Annual Interest Rate, and Cash Flow. In the first row of your spreadsheet, under “Present Value,” type in 0, and then label the next row “Time.” Type in 0 in the first column of the Time row, and then mark all subsequent columns with a period up until infinity (for example, 0, 1, 2, 3, 4). ## 2. Calculate the Net Cash Flow From Operating Activities

“Cash from operating activities” is the cash receipts and disbursements from your company’s everyday operations. It can be considered the “real” cash your company receives or pays out each period. As you know, “normal operations” generally imply a stable financial picture. In other words, it’s essential to look at what your business does rather than how it reports its financial position (a topic called “financial engineering”) or how it might be manipulated to look better than it does. In the first column of your spreadsheet labeled “Time,” enter the number 0, and copy it to all subsequent rows. In the second column, labeled “Cash Flow,” enter the cash flow from operating activities for that period. For example, let’s say your business had \$20,000 of cash receipts and operations disbursements during May.

## 3. Determine Net Cash Flow From Financing Activities

A company’s net cash flow from financing activities can be found in the cash flow statement under the net cash provided by financing activity. It reflects equity issuances, debt borrowings and repayment, dividends, and other financing-related activities. This is the amount your company uses for its financial activities. For example, if you had \$50,000 in cash flow from operating activities, but you also issued \$10,000 in equity and borrowed \$35,000 from a bank during May (netting this out), then your net cash flow from financing activities = \$20,000 -\$10,000- \$35,000 = -\$25,000.

## 4. Figure Out the Net Cash Flow From Investing Activities

Your company’s net cash flow from investing activities is the net amount of cash that your company spends on acquisitions, construction, improvements, and other business projects. It is reflected in the cash flow statement under the net cash used for investing activities. You can find net cash flow from selling activities in the net cash used in investing activities section of the cash flow statement. It is the amount of money and other assets the company incurs that it then uses to pay for other buying items. Also, look for “Other investing” under investing activities on your statement. ## 5. Calculate Depreciation Expense

Depreciation expense is a non-cash expense that accounts for physical assets wearing out or otherwise becoming obsolete over time. Depreciation expense is a negative number since it increases the value of an asset over time. The formula for depreciation expense, D(t), is: We also need to know the expected future cash flow value. “discounting expected cash inflows at an interest rate r.” Since cash is the next item down in the “Time” column, we know that C(t)=0 and that the present value of all future cash inflows = P(1+r).

## 6. Calculate the Future Value of Operating Activities

Put, operating income today is the same thing as future cash flow. In your spreadsheet, find the future value at each period labeled “Present Value.” The present value of operating income is found in cell C6. The cash flow for the next year is found in cell C7. Subtract these two values to calculate your company’s net cash flow from operations: Net Operating Income from Operations = \$10,000 * (1 + 1.

No cash is placed into the present value at time 0, so we must make a note in the spreadsheet to discount our future cash flow. We also need to remember that we are ignoring our cash flows to find the present value of each future cash flow. In this lesson, we showed you how to compute the net current value of a series of positive and negative cash flows over time. Although it is tough to calculate these problems without a computer, spreadsheets can make the calculations much easier.