Cash Flow Statement for Multiple Years
Cash flow from assets is the cash a firm's operations actually free up after it pays for new fixed assets and extra working capital. You build it from an income statement plus balance sheets for two or more years, and it must match what the firm pays its creditors and stockholders.
What you will learn
- How to get operating cash flow from EBIT, depreciation and taxes
- How to find net capital spending from two years of net fixed assets
- How to find the change in net working capital between years
- How to split cash flow from assets into creditors and stockholders
- How to repeat the steps year by year to spot trends
The formulas
- EBIT
- Earnings before interest and taxes
- Depreciation
- Non-cash expense, added back
- Taxes
- Taxes paid for the year
- Net fixed assets
- Fixed assets after accumulated depreciation
- NWC
- Current assets − Current liabilities
- Interest paid − Net new borrowing
- Cash flow to creditors
- Dividends paid − Net new equity
- Cash flow to stockholders
Worked example
In Year 2 a firm has EBIT of $500, depreciation of $100 and taxes of $120. Net fixed assets rose from $1,000 to $1,150 and net working capital rose from $300 to $340. It paid $50 of interest and borrowed a net $30 of new debt. Find cash flow from assets and split it.
- OCF = 500 + 100 − 120 = 480
- NCS = 1,150 − 1,000 + 100 = 250
- ΔNWC = 340 − 300 = 40
- CFFA = 480 − 250 − 40 = 190
- Cash flow to creditors = 50 − 30 = 20, so cash flow to stockholders = 190 − 20 = 170
Answer: Cash flow from assets is $190: $20 goes to creditors and $170 to stockholders. Repeat the same steps for each later year to compare.
Common questions
How do you calculate cash flow from assets?
Start with operating cash flow (EBIT + depreciation − taxes). Subtract net capital spending (change in net fixed assets plus depreciation) and the change in net working capital. The result is the cash the assets generated after reinvestment, and it equals cash flow to creditors plus cash flow to stockholders.
Why do you add depreciation back in net capital spending?
Net fixed assets fall each year by the depreciation charge even if nothing is sold. Adding depreciation back to the change in net fixed assets recovers how much the firm actually spent on new fixed assets during the year.
Can cash flow from assets be negative?
Yes. A fast-growing firm can spend more on fixed assets and working capital than its operations bring in. A negative figure means lenders or owners had to put money in that year, which is fine for growth but worrying if it lasts with no payoff.
How do you calculate cash flow to stockholders?
Take dividends paid and subtract any net new equity raised, meaning new shares sold minus shares bought back. You can also get it as cash flow from assets minus cash flow to creditors, which is a handy check on your work.