Net Cash Flow is the income from an investment property after the deduction of the monthly housing expenses (including principal, interest, taxes and insurance) from the monthly operating income.
Net Cash Flow = Cash Inflows – Cash Outflows
The net cash flow is a measure of the financial activity during a specific time period. The net cash flow statement determines the effects of changes in the balance sheet accounts. The statement comprises of 4 categories:
- Net cash flow from operating activity:
Operating activities include the regular internal activities in a business which require cash or generate it. They include cash collected from customers, cash paid to suppliers and employees, cash paid as operating expenses, interest and tax payments, and cash revenue from interest dividends.
- Net cash flow from investments:
This is the cash paid or collected from the purchase or sale of equipments respectively.
- Net cash flow from financing activity:
Financing activities such as sales of common stock, changes in short-term or long-term loans and dividends paid also affect the net cash flow.
- Net change in cash and marketable securities:
The results obtained by calculating the first 3 types of net cash flow are used to determine the net increase or decrease in cash and marketable securities due to variations in operating, investing and financing cash flow. This quantity is then checked against the change in cash which is found out from the balance sheet from time to time in order to verify if the calculation is being done correctly.
The net cash flow however does not take into account some items found in the income statement. But it gives the overall inflow and outflow figures which are required for budgeting and business planning.
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