How to Calculate Net Change in Cash From a Cash Flow Statement

A company's cash flow statement shows its sources and uses of cash.

A company's cash flow statement shows its sources and uses of cash.

Companies rely on cash to keep the wheels of their operations turning. They use cash for payroll, asset purchases and many other purposes. The net change in cash is the amount by which a company’s cash balance increases or decreases in an accounting period. When you own or consider buying stock in a company, it is important to monitor its net change in cash to make sure it doesn’t run out. You can use information from the three sections of a company’s cash flow statement to calculate its net change in cash. Ideally, a company will boost its cash balance each period.

Find the amount of net cash flow from operations in the “operating activities” section of the cash flow statement. This amount represents the overall positive or negative cash flow the company generated from its primary business operations, such as selling products and paying expenses. A cash flow statement shows negative amounts in parentheses and positive amounts without parentheses. For example, assume a company’s cash flow statement shows $70 million in cash flow from operations.

Identify the net cash flow from investing activities in the “investing activities” section. The net cash flow from this section is the overall cash flow from buying and selling long-term assets and investments. When a company invests in assets to expand its business, it typically has negative net cash flow from investing activities. In this example, assume the company has -$20 million in net cash flow from investing activities.

Find the amount of net cash flow from financing activities in the “financing activities” section. This amount reveals the company’s total cash flow from issuing and buying its own stocks and bonds and from paying dividends. In this example, assume the company reports $10 million in net cash flow from financing activities.

Add the net cash flows from each of the three sections to calculate the company’s net change in cash. A positive result represents an increase in cash, while a negative number represents a decrease. Concluding the example, add $70 million, -$20 million and $10 million to get a $60 million net change in cash. This means the company increased its cash by $60 million during the period.

Tips

  • You can verify your result by subtracting the beginning cash balance from the ending cash balance listed at the bottom of the cash flow statement. For example, if the company had $340 million and $400 million in cash at the beginning and end of the period, respectively, the $60 million difference matches your result.
  • Review the net cash flow from each section of the cash flow statement to determine the reasons for an increase or decrease in cash. A healthy company should consistently generate most of its cash from the operating activities section.
 

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