Calculate your company's cash flow from operations. Enter the relevant financial figures below.
Cash Flow from Operating Activities:
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Understanding Cash Flow from Operating Activities (CFO)
Cash Flow from Operating Activities (CFO) is a crucial metric that measures the cash generated by a company's normal business operations during a specific period. It represents the cash inflows and outflows directly related to the production and sale of goods or services. Analyzing CFO helps stakeholders understand a company's ability to generate cash from its core business, service its debts, pay dividends, and fund its operations without relying on external financing.
Why is CFO Important?
Core Business Health: It indicates the true profitability and sustainability of the company's primary activities.
Liquidity: A consistently positive CFO suggests strong liquidity and short-term financial health.
Financing Needs: It shows how much cash is available to reinvest in the business, pay down debt, or distribute to shareholders.
Quality of Earnings: CFO can be used to assess the quality of reported net income. High net income with low or negative CFO might signal aggressive accounting practices.
Methods of Calculation
There are two primary methods for calculating Cash Flow from Operating Activities: the Direct Method and the Indirect Method. The calculator above uses the Indirect Method, which is more commonly reported in financial statements.
Indirect Method Explained
The Indirect Method starts with Net Income (from the income statement) and adjusts it for non-cash items and changes in working capital accounts.
Key Adjustments:
Non-Cash Expenses: Items like Depreciation and Amortization are added back to Net Income because they reduced net income on the income statement but did not involve an actual outflow of cash.
Gains/Losses on Asset Sales: Gains on the sale of assets are subtracted, and losses are added back. This is because the cash received from selling an asset is typically classified under Investing Activities, not Operating Activities.
Changes in Working Capital: These adjustments account for the timing differences between accrual accounting (used for net income) and cash accounting.
An *increase* in current assets (like Accounts Receivable or Inventory) means cash was used, so it's subtracted from Net Income.
A *decrease* in current assets means cash was received or freed up, so it's added to Net Income.
An *increase* in current liabilities (like Accounts Payable or accrued expenses) means the company has deferred payment, effectively conserving cash, so it's added to Net Income.
A *decrease* in current liabilities means cash was paid out, so it's subtracted from Net Income.
The Formula (Indirect Method)
Cash Flow from Operating Activities = Net Income + Depreciation & Amortization + Losses on Sale of Assets – Gains on Sale of Assets +/- Changes in Operating Assets & Liabilities
Note: This calculator simplifies "Changes in Operating Assets & Liabilities" into specific line items and a net change for other items. Ensure you correctly identify increases and decreases in relevant working capital accounts.
Example Calculation:
Let's assume a company has the following figures for a period:
Net Income: $500,000
Depreciation & Amortization: $75,000
Gain on Sale of Equipment: $5,000
Decrease in Accounts Receivable: $15,000
Increase in Inventory: $12,000
Increase in Accounts Payable: $18,000
Calculation:
CFO = $500,000 (Net Income)
+ $75,000 (Depreciation)
– $5,000 (Gain on Sale)
+ $15,000 (Decrease in AR)
– $12,000 (Increase in Inventory)
+ $18,000 (Increase in AP)
CFO = $591,000
This means the company generated $591,000 in cash from its core operations, which is higher than its net income due to non-cash expenses and favorable changes in working capital.
function calculateCashFlow() {
var netIncome = parseFloat(document.getElementById("netIncome").value);
var depreciation = parseFloat(document.getElementById("depreciation").value);
var gainOnSale = parseFloat(document.getElementById("gainOnSale").value);
var lossOnSale = parseFloat(document.getElementById("lossOnSale").value);
var decreaseInAR = parseFloat(document.getElementById("decreaseInAR").value);
var increaseInAR = parseFloat(document.getElementById("increaseInAR").value);
var decreaseInInventory = parseFloat(document.getElementById("decreaseInInventory").value);
var increaseInInventory = parseFloat(document.getElementById("increaseInInventory").value);
var decreaseInAP = parseFloat(document.getElementById("decreaseInAP").value);
var increaseInAP = parseFloat(document.getElementById("increaseInAP").value);
var changeInOtherAssets = parseFloat(document.getElementById("changeInOtherAssets").value);
var changeInOtherLiabilities = parseFloat(document.getElementById("changeInOtherLiabilities").value);
var cashFlow = 0;
// Validate inputs to prevent NaN
if (!isNaN(netIncome)) {
cashFlow += netIncome;
}
if (!isNaN(depreciation)) {
cashFlow += depreciation;
}
if (!isNaN(lossOnSale)) {
cashFlow += lossOnSale;
}
if (!isNaN(gainOnSale)) {
cashFlow -= gainOnSale;
}
if (!isNaN(decreaseInAR)) {
cashFlow += decreaseInAR;
}
if (!isNaN(increaseInAR)) {
cashFlow -= increaseInAR;
}
if (!isNaN(decreaseInInventory)) {
cashFlow += decreaseInInventory;
}
if (!isNaN(increaseInInventory)) {
cashFlow -= increaseInInventory;
}
if (!isNaN(decreaseInAP)) {
cashFlow -= decreaseInAP;
}
if (!isNaN(increaseInAP)) {
cashFlow += increaseInAP;
}
if (!isNaN(changeInOtherAssets)) {
// Assumption: Positive value means an increase in assets, so subtract cash.
// If the user intended a decrease, they should input a negative number.
cashFlow -= changeInOtherAssets;
}
if (!isNaN(changeInOtherLiabilities)) {
// Assumption: Positive value means an increase in liabilities, so add cash.
// If the user intended a decrease, they should input a negative number.
cashFlow += changeInOtherLiabilities;
}
// Format the result to two decimal places for currency representation, or just as a number if preferred.
// For financial figures, it's common to display integers or with cents.
var formattedCashFlow = cashFlow.toFixed(2);
document.getElementById("result-value").innerText = "$" + formattedCashFlow;
}