How is the net cash flow calculated
The net cash flow can reflect the net increase or decrease of cash and cash equivalents in the current period. How to calculate the net cash flow?
How is the net cash flow calculated?
1. Net cash flow NCF=business income - cash cost - income tax;
2. Net cash flow=net profit+depreciation=(operating income - related cash outflow - depreciation) * (1 - tax rate)+depreciation; The second formula is commonly used. Pay attention to depreciation accrual.
Net profit refers to the amount after deducting income tax from the total profit of the enterprise in the current period, that is, the after tax profit of the enterprise. Income tax refers to the tax that an enterprise calculates and pays to the state according to the standard stipulated in the income tax law on the total profits it will realize. It is a deduction item of the total profit of an enterprise.
Net profit=total profit - income tax expense
Depreciation refers to the value compensation for the loss of fixed assets in use. It is usually calculated based on the average of the original value and the expected service life. Fixed assets shall be depreciated monthly. For the fixed assets increased in the current month, depreciation will not be accrued in the current month, but will be accrued from the next month; For the fixed assets decreased in the current month, depreciation is still accrued in the current month, and no depreciation is accrued from the next month.
An enterprise shall reasonably select the depreciation method of fixed assets according to the expected consumption mode of economic benefits related to fixed assets. The depreciation methods available include straight-line method, workload method, double declining balance method and sum of years method. Once the depreciation method of fixed assets is determined, it shall not be changed at will.
The use of fixed assets by enterprises in the process of production and operation leads to the loss of value. Only a certain residual value is left. The difference between the original value and the residual value is allocated to the consumption of fixed assets within its service life, which is the depreciation of fixed assets. Determining the depreciation range of fixed assets is the prerequisite for depreciation accrual.
How to understand cash flow?
The source of cash flow is modern finance, which refers to the total amount of cash outflows and cash inflows of an investment project during its entire life cycle.
Cash flow is a necessary information for evaluating the economic benefits of investment plans. The specific contents include: (1) Cash outflow: cash outflow is the total capital expenditure of investment projects. It includes the following items: ① Fixed asset investment. Various capital expenditures for purchase or construction of fixed assets. ② Current asset investment. The capital occupied by the inventory, monetary capital, accounts receivable and other items required by the investment project. ③ Operating costs. The production costs, administrative expenses and sales expenses incurred in the operation of the investment project. It is usually expressed as the balance of all costs minus depreciation. (2) Cash inflow: cash inflow refers to all capital income generated by the investment project. It includes the following items: ① Operating revenue. Sales revenue from selling products in the course of business. ② Residual value income or price change income. The residual value of fixed assets at the expiration of their service life, or the cash income generated from the sale of fixed assets when their service life has not expired for some reason. ③ Recovered current assets. The amount of the original current asset investment recovered when the life of the investment project expires. In addition, the cost reduction after implementing a decision is also regarded as cash inflow.