The cash flow statement provides a detailed summary of how a company’s cash position changes over a specified period due to its operating, investing, and financing activities. To calculate the available cash at the end of a given period from a cash flow statement, follow these steps:
- Identify the starting cash balance: This is usually found at the top of the cash flow statement and represents the cash balance at the beginning of the period.
- Calculate net cash from operating activities: This section includes cash inflows and outflows related to the company’s primary business operations like selling goods, providing services, paying salaries, and other day-to-day expenses.
- Calculate net cash from investing activities: This section includes cash flows associated with the purchase and sale of long-term assets like property, plant, and equipment, and investments in other businesses.
- Calculate net cash from financing activities: This section includes cash flows from issuing or repaying debt, issuing or repurchasing equity, and paying dividends.
- Add/Subtract the net cash from each of these sections (operating, investing, financing) to the starting cash balance.
The result will be the ending cash balance, which is the available cash at the end of the period.
So, the formula would look like this:
Ending Cash Balance (Available Cash) = Starting Cash Balance + Net Cash from Operating Activities + Net Cash from Investing Activities + Net Cash from Financing Activities
Remember, while this calculation gives you the cash available at the end of the period, it’s also essential to understand the nature of these cash flows. Some cash inflows or outflows may be one-time events or might not be sustainable in the long term.