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Net Cash Flow

Posted on: 09th Apr, 2004 01:00 am
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.
Which of the following would lower the calculated value of the investment?
a.The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000.

b.The discount rate increases.
c.The riskiness of the investments cash flows decreases.
d.The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years.
Posted on: 17th Oct, 2008 11:56 am
25. Which of the following statements is correct?

a. In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash.
b. Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.
c. In the statement of cash flows, a decrease in accounts payable is reported as a use of cash.
d. In the statement of cash flows, depreciation charges are reported as a use of cash.
Posted on: 17th Oct, 2008 11:57 am
Hi jonny evans!

I do not think the first statement that you have mentioned is correct.

Dividends will also be shown as a negative activity.

A decrease in accounts payable is reported as a negative amount on the SCF.

Depreciation is added to the net income of the operating activities section as the company's income was reduced by the depreciation expenses shown on the statement of income.

Thanks.
Posted on: 20th Oct, 2008 03:12 am
if a co-op building pays off a mortgage by refinancing with another, larger mortgage how is this reflected in the cash flow statement? do i need to show a gross inflow from the new mortgage and a gross outflow for the old mortgage even though it was paid off via the refinance? thanks for any help!
Posted on: 20th Mar, 2010 05:46 pm
Hi Andrea,

I believe you need to show the gross inflow from the new mortgage and gross outflow for the previous mortgage on the cash flow statement. But you should talk to an accountant about this as he is the best person to tell you how you should show the refinance transaction on the cash flow statement.
Posted on: 22nd Mar, 2010 02:36 am
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