CASH is KING 👑
but before you wear the crown, you must know everything about it
Let's do a deep dive on 13 cash flow formulas 👇
but before you wear the crown, you must know everything about it
Let's do a deep dive on 13 cash flow formulas 👇
1. Operating Cash Flow (OCF)
Formula → OCF = Net Income + Depreciation + Amortization + Other Non-Cash Items - Changes in Working Capital
What it means → A measure of a company's cash inflows and outflows from its primary business activities.
Formula → OCF = Net Income + Depreciation + Amortization + Other Non-Cash Items - Changes in Working Capital
What it means → A measure of a company's cash inflows and outflows from its primary business activities.
2. Free Cash Flow (FCF):
Formula → FCF = Operating Cash Flow - Capital Expenditures
What it means → Free cash flow measures a company's cash flow available for distribution to its investors or for future investments.
Formula → FCF = Operating Cash Flow - Capital Expenditures
What it means → Free cash flow measures a company's cash flow available for distribution to its investors or for future investments.
3. Cash Conversion Cycle (CCC):
Formula → CCC = Days of Inv Outst. + Days of Sales Outst. - Days of Payables Outst.
What it means → measures the amount of time it takes to convert its investments in inv and rec into cash, less the time it takes to pay suppliers.
Formula → CCC = Days of Inv Outst. + Days of Sales Outst. - Days of Payables Outst.
What it means → measures the amount of time it takes to convert its investments in inv and rec into cash, less the time it takes to pay suppliers.
4. Net Cash Flow:
Formula → Net Cash Flow = Operating Cash Flow + Investing Cash Flow + Financing Cash Flow
What it means → Net cash flow measures the total amount of cash generated or used by a company from its operating, investing, and financing activities.
Formula → Net Cash Flow = Operating Cash Flow + Investing Cash Flow + Financing Cash Flow
What it means → Net cash flow measures the total amount of cash generated or used by a company from its operating, investing, and financing activities.
5. Discounted Cash Flow (DCF):
Formula → DCF = CF1 / (1+r)1 + CF2 / (1+r)2 + ...+ CFn / (1+r)n, where CF is cash flow, r is the discount rate, and n is the number of periods
What it means → method of valuing an investment by discounting its expected future cash flows
Formula → DCF = CF1 / (1+r)1 + CF2 / (1+r)2 + ...+ CFn / (1+r)n, where CF is cash flow, r is the discount rate, and n is the number of periods
What it means → method of valuing an investment by discounting its expected future cash flows
6. Present Value:
Formula → PV = CF / (1+r)t, where CF is cash flow, r is the discount rate, and t is the number of periods.
What it means → Present value measures the current value of a future cash flow, given a discount rate.
Formula → PV = CF / (1+r)t, where CF is cash flow, r is the discount rate, and t is the number of periods.
What it means → Present value measures the current value of a future cash flow, given a discount rate.
7. Future Value:
Formula → FV = CF x (1+r)t, where CF is cash flow, r is the interest rate, and t is the number of periods.
What it means → Future value measures the value of a current cash flow at a future point in time, given an interest rate.
Formula → FV = CF x (1+r)t, where CF is cash flow, r is the interest rate, and t is the number of periods.
What it means → Future value measures the value of a current cash flow at a future point in time, given an interest rate.
8. Payback Period:
Formula → Payback Period = Initial Investment / Annual Cash Flow
What it means → The payback period measures the amount of time it takes for an investment to generate enough cash flows
Formula → Payback Period = Initial Investment / Annual Cash Flow
What it means → The payback period measures the amount of time it takes for an investment to generate enough cash flows
9. Operating Cash Flow to Sales Ratio:
Formula → Operating Cash Flow / Net Sales
What it means → This ratio measures the percentage of each sales dollar that is converted into operating cash flow.
Formula → Operating Cash Flow / Net Sales
What it means → This ratio measures the percentage of each sales dollar that is converted into operating cash flow.
10. Cash Ratio:
Formula → (Cash + Marketable Securities) / Current Liabilities
What it means → This ratio measures a company's ability to pay off its current liabilities using only its most liquid assets, such as cash and marketable securities.
Formula → (Cash + Marketable Securities) / Current Liabilities
What it means → This ratio measures a company's ability to pay off its current liabilities using only its most liquid assets, such as cash and marketable securities.
11. Cash Burn:
Formula → Cash from Operating Activities + Cash from Investing Activities
What it means → Measures the amount of cash consumed without accounting for activities related to financing (equity / debt)
Formula → Cash from Operating Activities + Cash from Investing Activities
What it means → Measures the amount of cash consumed without accounting for activities related to financing (equity / debt)
12. Unlevered Free Cash Flow:
Formula → EBIT x (1 - Tax Rate) + Depr. & Amort. - CapEx - Increase in Net Working Capital
What it means → cash flow available to all providers of capital (both debt and equity), assuming the company is entirely financed by equity
Formula → EBIT x (1 - Tax Rate) + Depr. & Amort. - CapEx - Increase in Net Working Capital
What it means → cash flow available to all providers of capital (both debt and equity), assuming the company is entirely financed by equity
13. Levered Free Cash Flow:
Formula → EBITDA - Taxes - Capital Expenditures - Changes in Net Working Capital - Interest Expense
What it means → This represents the cash flow available to equity holders after taking into account interest payments on debt.
Formula → EBITDA - Taxes - Capital Expenditures - Changes in Net Working Capital - Interest Expense
What it means → This represents the cash flow available to equity holders after taking into account interest payments on debt.
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