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Asked Oct 23, 2019
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What is Calculation of Net Cash Flow?  Please provide example.

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Expert Answer

Step 1

Net Cash Flow: It is the total amount of money created or lost over a particular timeframe, normally more than at least one accounting periods. This idea is utilized to observe the short-term financial feasibility of a business, which is viewed as its capacity to create money.

Step 2

Net cash flow can be classified into three types of activities, which are as follows:

  • Operating Activities: It is the total cash which is created and utilized by the essential functions of a business, for example, cost of goods sold.
  • Financing Activities: It is the cash which is received through a debt agreement, or any money provided to repay the debt, repurchase organization’s shares, or paying a dividend.
  • Investment Activities: It is the total cash which is received from a profit on a investment, or purchase of fixed assets.
Step 3

The calculation of net cash flows of Company G is shown below:

Excel Spreadsheet:

...
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А В с 1 Particulars Amount Amount 2 Cash Flow from Operating Activities 3 Add: Sales 4 Less: Materials Cost 5 Less: Labor Cost $1,000,000 ($100,000) ($100,000)| $800,000 6 7 Cash Flow from Financing Activities 8 Add: Loan Received 9 Less: Repayment of Loan 10 Less: Taxes $4,000,000 ($500,000) ($500,000) $3,000,000 11 12 Cash Flow from Investing Activities 13 Less: Capital Purchased Net Cash Flows ($800,000)| ($800,000)| $3,000,000 14

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