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

The net change in cash within a cash flow statement refers to the increase or decrease of cash and cash equivalent balances within a specified period. And it factors in the net changes in cash for investing, financing and operating activities.

Net Change in Cash: The Basics

You do not always have to use a net change in cash calculator to find these changes from one accounting year to another. Generally accepted accounting principles (GAAP) dictate that accountants should write down the net change in cash at the bottom part of the cash flow statement as a summary.

However, you can calculate the net increase in cash by comparing the difference between cash and cash equivalents at the beginning of the accounting period and at the end to determine how much more money a company has made over the specified period. However, if an organization has less than it began with, it will have a net decrease in cash.

Read More:Cash Flow vs. Cash Position

What Is Net Cash Formula?

The net cash formula for calculating the net change in cash from a cash flow statement depends on the sum of all incoming cash and outgoing monies. You can calculate it in two primary ways, but both strategies involve figuring out the net cash for the current accounting period.

In this case, net cash refers to the difference between the company’s cash and cash equivalents compared to its liabilities. And you can use it to determine a business’s liquidity and ability to pay off its debts.

Formula 1

Net cash flow = total cash inflow - total cash outflow

Formula 2

Net cash = Net cash flow from operating activities + net cash flow from investing activities + net cash flow from financing activities

In both of the above cases, the result will give you the current cash balance. Therefore, you will need to compare the balance to the previous accounting period’s cash balance to find the net change in cash.

Calculate Net Change in Cash From a Cash Flow Statement

Below is the procedure for calculating the net increase in cash or decrease. You can find a net change in cash calculator online or do the math manually.

  1. Begin by finding the company’s current statement of cash flows whose net increase in cash you want to calculate. And you can find it within the relevant company’s Form 10-K or Form-Q reports. Such a statement is usually available in the investor’s relation section of the company website or the U.S. SEC’s EDGAR search tool.
  2. Once you find the company’s cash flow statement, check at the bottom of the page. If the company accountant has listed the previous year’s and the current period’s cash and cash equivalent amounts, it is much easier to calculate the net change in cash from a cash flow statement. So, use the formula: net change in cash = end of year cash and cash equivalents – beginning of the year cash and cash equivalents. However, if the amount is missing, go to step three.
  3. Find out the previous year’s cash and cash equivalent amount from the cash flow statement from that period by using the strategies in step one. If you want to calculate the net change every quarter, use Form 10-Q. But if you wish to calculate the annual change, use Form 10-K. That amount will act as your reference point.
  4. Take note of the net cash flows from operating, investing and financing activities (CFO, CFI and CFF, respectively) and add them up. The amounts could be stated in bold or at the end of each of those activity sections. For example, suppose company ABC had total cash and cash equivalent balance of $500,000 the year before. And now, it has a CFO of $500,000, CFI of ($750,000) and a CFF of $1,000, 000. In that case, its current cash and cash equivalent amount is ($1,000,000 + $500,000 - $750,000), which equals $750,000. Typically, the amount in parenthesis means it’s negative because the company spent more than it brought in when investing.
  5. Compare the total net cash from the current cash flow statement and the one belonging to the previous accounting period. And then, find the difference to determine the net change in cash. Based on the example above, we would subtract $500,000 from $750,000 to get $250,000. In this case, company ABC has a net increase in cash.

If the company has a decrease in cash, it indicates poor performance. And it implies the organization has to find external sources of money to fund its operations. However, it is not the only indicator of overall good health. So, it would be best if you also considered other aspects of the company’s performance before deciding whether to invest or not.