How to Calculate a Company's Monthly Cash Flow

by Michael Dreiser

A company's monthly cash flow can be calculated using the changes in the accounts reported on the company's statement of financial position, which is commonly known as the company's balance sheet. This method of computing is known as the indirect method of computing cash flows, and it is the most common method for calculating cash flows.

Calculating Monthly Cash Flow

Identify the company's net income for the month from the income statement or the statement of comprehensive income. This number is your starting point for the calculation of the monthly cash flows.

Add non-cash deductions and subtract any non-cash income that does not relate to operating activities to the company's net income for the month. Generally, this will involve adding deductions for depreciation and amortization expenses incurred during the month.

Identify all non-cash assets and liabilities on that company's statement of financial position that have changed in value from the beginning to the end of the month. Compute the amount of the increase or decrease of each non-cash asset and liability that has changed.

Decrease the value obtained in Step 2 by the aggregate amount of increases in all asset accounts during the month. If you added back depreciation or amortization in Step 2, make sure you are using the gross value of the asset, not the value net of accumulated depreciation or accumulated amortization.

Increase the value obtained in Step 4 by the aggregate amount of decreases in all asset accounts during the month. Again, if you added back depreciation or amortization in Step 2, make sure you are using the gross value of the asset, not the value net of accumulated depreciation or accumulated amortization.

Increase the value obtained in Step 5 by the aggregate amount of increases in all liability accounts during the month.

Decrease the value obtained in Step 6 by the aggregate amount of decreases in all liability accounts during the month.

Identify any capital contributions from owners in statement of changes in equity during the month. If the owners contributed capital to the company, this amount must be added to the value obtained in Step 7. If no capital was contributed, the value obtained in Step 7 remains the same.

Identify any capital distributions to owners in statement of changes in equity during the month. If the owners were distributed capital from the company, this amount must be subtracted from the value obtained in Step 8. If no capital was distributed, the value obtained in Step 8 remains the same. This final value is the net monthly cash flow.

Warning

  • In advanced accounting, additional adjustments must be made to account for intercompany transactions when a company is comprised of multiple consolidated subsidiaries.

Items you will need

  • Statement of financial position at the beginning of the month.
  • Statement of financial position at the end of the month.
  • Income statement or statement of financial of comprehensive income for the month.
  • Statement of changes in equity for the month.

About the Author

Michael Dreiser started writing professionally in 2010. He is a certified public accountant with experience working for a large New York City accountancy and expertise in areas ranging from private equity taxation to investment management. He holds a Master of Business Administration in international finance from l’École Nationale des Ponts et Chaussées in Paris.

Photo Credits

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