Cash flow is the lifeblood of any business. You can have a great product, strong revenue, and even solid profit margins—but if your cash flow is off, everything can fall apart fast.
That’s why financial professionals must be fluent in the language of cash flow formulas.
Whether you’re in FP&A, investment analysis, corporate finance, or startup advisory, these 11 formulas are foundational for modeling, reporting, and decision-making.
💡 So, what are the most important cash flow formulas?
Here’s your go-to list 👇
1️⃣ Free Cash Flow (FCF)
FCF = Operating Cash Flow − Capital Expenditures
🧠 Indicates how much cash the company generates after reinvesting in its assets. Used for valuation and strategic planning.
2️⃣ Operating Cash Flow (OCF)
OCF = Net Income + Depreciation + Amortization + Other Non-Cash Items − Changes in Working Capital 🧾 Shows actual cash generated from operations before investments and financing.
3️⃣ Cash Conversion Cycle (CCC)
CCC = Days Inventory Outstanding + Days Sales Outstanding − Days Payables Outstanding
🕒 Measures how efficiently a company manages its inventory, receivables, and payables to convert investments into cash.
4️⃣ Net Cash Flow
Net Cash Flow = OCF + Investing Cash Flow + Financing Cash Flow
💰 The true change in your cash position over time.
5️⃣ Discounted Cash Flow (DCF)
DCF = CF₁ / (1+r)¹ + CF₂ / (1+r)² + … + CFₙ / (1+r)ⁿ
🔍 Core of valuation models—estimates the present value of future cash flows.
6️⃣ CF Present Value (PV)
PV = CF / (1+r)ᵗ
🎯 Used to bring a future cash flow to today’s value.
7️⃣ CF Future Value (FV)
FV = CF × (1+r)ᵗ
📈 Projects what today’s cash flow will be worth in the future, considering growth/interest.
8️⃣ CF Payback Period
Payback = Initial Investment / Annual Cash Flow
📆 Measures how quickly an investment pays itself back.
9️⃣ Operating Cash Flow to Sales Ratio
Operating Cash Flow / Net Sales
📊 Assesses how efficiently a company converts sales into cash.
🔟 Cash Ratio
Cash Ratio = (Cash + Marketable Securities) / Current Liabilities
⚖️ Liquidity test showing the company’s ability to pay short-term obligations with cash on hand.
1️⃣1️⃣ Cash Burn
Cash Burn = Operating Cash Flow + Investing Cash Flow
🔥 Critical for startups and high-growth companies—it shows how fast cash is being used.
🚀 Why These Formulas Matter
Knowing these formulas helps you:
✅ Build smarter financial models
✅ Monitor performance with confidence
✅ Communicate clearly with stakeholders
✅ Evaluate investments with precision
✅ Avoid cash crises before they start
Let’s be honest—cash flow tells the real story. Master these formulas, and you’ll always stay one step ahead.
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