How to calculate the net cash flow from operating activities
Net cash flow from operating activities is the net inflow and outflow of net net operating cash flow after deducting total operating costs. Strictly speaking, the cash flow generated by operating activities reflected in the cash flow statement is prepared on the basis of cash receipts and payments, and the net profit is adjusted to the cash flow of operating activities.
The formula for calculating net cash flow from operating activities is as follows: net cash flow from operating activities = net operating income + non-cash expenses - net increase in operating assets - decrease in interest-bearing liabilities. Among them, net operating income = net profit + depreciation + deferred tax credit, non-cash expenses = depreciation + amortization of intangible assets + amortization of long-term amortization expenses + interest on short-term borrowings, net increase in operating assets = increase in working capital + net increase in fixed assets + net increase in intangible assets + net increase in other long-term assets, decrease in interest-bearing liabilities = decrease in operating receivables + increase in operating payables.
Steps to calculate net cash flow from operating activities:
1.Calculate net profit. Net profit comes from the income statement, which excludes non-operating income and deferred income tax. Therefore, the net profit in the cash flow from operating activities should be added to the non-cash expenses (depreciation and amortization) and minus the non-operating income (non-operating income minus non-operating expenses). If you still don't understand something, you can look at the notes to the company's financial statements.
2.The necessary adjustments to adjust from profit to operating cash flow include non-cash expenses, non-operating income, investment income, and changes in current assets and current liabilities such as inventories and operating receivables and payables. Non-cash expenses are equal to depreciation and reductions in expenses to be amortized, and non-operating income includes net losses on disposal of fixed assets, intangible assets and other long-term assets, as well as losses on the retirement of fixed assets.
3.The main part of calculating the cash flow from operating activities: cash flow from operating activities = operating income - (operating costs and expenses - depreciation and amortization) - income tax = profit + depreciation and amortization - income tax. This part is what we usually call "balance", i.e. the profits generated through normal business activities.
4.Calculate cash flows from investment activities and financing activities. Cash flows from investing activities include cash flows from the purchase and construction of fixed assets, the disposal of long-term assets, and the acquisition or recovery of investmentsCash flows from financing activities include cash flows such as investment absorption, distribution of dividends, debt repayment, and interest expense.
5.Calculate the total cash flow. Total cash flow = cash flow from operating activities + cash flow from investment activities + cash flow from financing activities.
6.The value of the net cash flow is calculated. Net cash flow = total cash flow - depreciation and amortization.
Through the above steps, we can calculate the value of net cash flow from operating activities. In practice, we also need to pay attention to some details, such as: for those companies that often engage in profit manipulation, they need to conduct an in-depth analysis of their financial statements;For enterprises with a large number of non-performing assets, detailed verification of non-performing assets is required;For enterprises with a large number of investment projects, it is necessary to carefully verify the investment funds** and the progress of the investment project. At the same time, we also need to pay attention to the characteristics of the industry in which the enterprise is located, the market environment and the future development prospects, so as to more accurately assess the operating conditions and future development potential of the enterprise.
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