Net cash flow

Net cash flow is the cash coming into a business minus the cash going out during the same period. It compares cash inflows (money received) with cash outflows (money paid out). The formula is:

Net cash flow = cash inflows − cash outflows

A positive answer is a cash surplus: more cash came in than went out during that period. A negative answer is a cash deficit: more cash went out than came in. For example, a mobile bike repair service receives £3,200 from customers in a month and pays £3,750 for parts, fuel and wages. Its net cash flow is £3,200 − £3,750 = −£550, so it has a cash deficit of £550 for that month.

Several periods

To find total net cash flow over several periods, add the net cash flow for each period. You can also take total cash inflows for the whole time and subtract total cash outflows; both methods give the same answer.

Adding the monthly figures gives £500 + (−£400) + £500 = £600. Using the totals gives £6,900 − £6,300 = £600. A deficit in one month is cancelled out by a bigger surplus in another, so the total can look healthy even when one month runs short.

When you calculate net cash flow, write out the formula, put in the figures and show each step of your working, using a calculator if your exam allows it.