We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What are the Different Types of Cash Flow Formula?

By Osmand Vitez
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

In business, cash is king. Many companies use a specific cash flow formula to calculate cash flow to ensure they have enough liquidity in business. Common types of cash flow formulas include the free cash flow, discounted cash flow, operating cash flow, and the statement of cash flows. The first three are simplistic formulas that require some estimating of future cash flows and what these figures mean to a company’s current operations. The statement of cash flows is a professional statement released to all business stakeholders as an official cash position.

Free cash flow is the amount of cash a company has to distribute among the individuals or groups invested in the company. The basic formula for this calculation is net income plus depreciation and amortization expense, less working capital changes and capital expenditures. Depreciation and amortization is added back to net income because these figures are non-cash items. The expenditures listed on the income statement for depreciation and amortization is simply accounting figures. Changes in working capital are the additions or subtractions relating to current assets and current liabilities.

Discounted cash flow is a cash flow formula that takes estimated future cash flows and discounts them back to the current time’s dollar value. This helps companies determine if new business opportunities are worth the initial expense. For example, a company expecting to earn $150,000 US Dollars (USD) will discount this figure to the current dollar value using the company’s cost of capital figure. The cost of capital interest rate is what companies must pay for the use of external funds, whether debt or equity. This cash flow formula is primarily for use as a corporate finance forecasting tool.

Operating cash flow is one section of the statement of cash flows. This portion relates to the cash inflows and outflows related directly to a company’s normal business operations. While similar to the free cash flow formula, the operating cash flow contains a few extra pieces. The formula deducts increases in account receivables, investment income and other income from the company’s net income. The company will then add expenses reported as losses and deduct an increase in accounts payable, depreciation, impairments or other accounting figures and financing expenses. The result is the actual cash flow from normal business operations.

The statement of cash flows includes the operating cash flow formula, and includes cash inflows and outflows from investment and financing operations. This allows the company to determine the cash flow from the sales of assets and generated from selling bonds, issuing stock, paying dividends and other activities involving the company’s cash resources.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.