Contents
- 1 Cash Flow Calculator — CFO, CFI, CFF & Free Cash Flow
- 1.1 Cash Flow vs Profit — A Critical Distinction
- 1.2 The Three Cash Flow Categories (Ind AS 7 / AS 3)
- 1.3 Free Cash Flow (FCF) — The Most Important Metric
- 1.4 Worked Example — D2C Brand
- 1.5 13-Week Cash Flow Forecast — Critical for SMEs
- 1.6 How to Improve Cash Flow Immediately
- 1.7 Cash Flow Red Flags in Annual Reports
- 1.8 Frequently Asked Questions
- 1.9 Related Calculators
Cash Flow Calculator — CFO, CFI, CFF & Free Cash Flow
Build a complete cash flow statement with operating, investing and financing activities. See Free Cash Flow and earnings quality.
Cash Flow vs Profit — A Critical Distinction
Profit is an opinion (subject to accounting choices); cash flow is a fact. Many “profitable” companies go bankrupt because they couldn’t generate enough cash. A business survives on cash, not on accrual-basis profits sitting in the P&L.
Why Profit ≠ Cash
- Sales on credit: ₹10L invoice recorded as revenue but customer pays in 90 days — profit up, cash same
- Depreciation: ₹5L depreciation reduces profit, no cash leaves
- Inventory buildup: Cash spent on raw materials, expense recognized only on sale
- Capex: ₹50L machine purchase reduces cash entirely; P&L only sees depreciation over 10 years
- Tax timing: Tax provision in P&L vs actual advance tax paid quarterly
The Three Cash Flow Categories (Ind AS 7 / AS 3)
| Category | Includes | What Healthy Looks Like |
|---|---|---|
| Operating (CFO) | Cash from core business — collections, payments to suppliers/employees, taxes paid | Strongly positive; should ≈ Net Profit + Depreciation |
| Investing (CFI) | Buying/selling assets, capex, investments, acquisitions | Typically negative (growing businesses invest) |
| Financing (CFF) | Debt taken/repaid, equity raised, dividends paid, buybacks | Negative when debt is being repaid (mature) |
Free Cash Flow (FCF) — The Most Important Metric
FCF = CFO − Capital Expenditure. This is the “true” cash a business generates after maintaining its asset base. Investors use FCF to value companies; shareholders to assess sustainability of dividends and buybacks.
FCF Yield = FCF / Market Cap
| Company Type | Typical FCF Yield |
|---|---|
| Mature FMCG (HUL, ITC) | 3-5% |
| IT Services (TCS, Infosys) | 4-6% |
| Utilities (PowerGrid) | 5-8% |
| Growth tech (Zomato, Nykaa) | negative or near-zero |
| Capital-intensive (Reliance, Adani) | 0-3% (high capex) |
Worked Example — D2C Brand
| Net Profit | ₹1.00 cr |
| (+) Depreciation | ₹0.20 cr |
| (−) Increase in Inventory | (₹0.80 cr) |
| (−) Increase in Receivables | (₹0.40 cr) |
| (+) Increase in Payables | ₹0.30 cr |
| Cash from Operations | ₹0.30 cr |
| (−) Capex | (₹1.50 cr) |
| Free Cash Flow | (₹1.20 cr) |
| (+) Debt raised | ₹2.00 cr |
| Net Change in Cash | ₹0.80 cr |
Despite ₹1 cr “profit”, CFO is only ₹30L. Without ₹2 cr debt, business would run out of cash. Profit ≠ Cash.
13-Week Cash Flow Forecast — Critical for SMEs
The single most useful tool for SMEs in stress or growth mode. Track each week:
- Expected collections from customers (by name, due date)
- Confirmed payments to suppliers (by invoice)
- Salary, rent, GST, TDS, advance tax outflows
- Loan EMIs, statutory payments
- Opening + inflow − outflow = closing weekly balance
Update every Monday. If forecast shows negative balance in week 5-8, you have 4-6 weeks to act — borrow, push collections, defer payments, raise equity. Without this visibility, businesses are blindsided by sudden cash crunches.
How to Improve Cash Flow Immediately
- Accelerate collections: 2% early payment discount, dunning email day 1 after due, factoring/discounting
- Stretch payables (carefully): Negotiate Net 45/60 with non-MSME suppliers; avoid hurting key relationships
- Reduce inventory: Liquidate slow-movers at 50-70% discount, drop-ship/JIT, reduce SKU count
- Defer capex: Lease vs buy, postpone non-critical equipment, second-hand options
- Sweep idle cash: Move surplus to liquid mutual funds (6-7% returns) or sweep-in FDs
- Subscription / advance models: Move from credit sales to upfront / subscription / advance booking
Cash Flow Red Flags in Annual Reports
- Profit growing, CFO stagnant/falling: Earnings quality deteriorating (DHFL, ILFS pre-crisis)
- CFO consistently < Net Profit: Aggressive revenue recognition, WC ballooning
- Heavy reliance on CFF for survival: Continual fresh debt to plug operating gaps
- Sudden capex spike: Investigate — could be related-party transaction or asset-stripping
- Cash & bank balance NOT matching investment yield: Possible misreported cash (Satyam, CG Power, several frauds)
Frequently Asked Questions
What’s the difference between direct and indirect cash flow methods?
Indirect (starts with net profit, adjusts for non-cash items) is common in Indian annual reports. Direct method (lists actual cash inflows/outflows) is more intuitive but rarely published. Both arrive at same CFO.
Should I use cash basis or accrual accounting?
IT Act allows cash basis only for professionals (Section 44ADA) up to certain limits. GST and Companies Act require accrual. Most businesses use accrual for compliance + parallel cash flow tracking for management.
How does GST affect cash flow?
You pay GST on outward supply by 20th of next month. ITC claimed in same period. Cash impact: timing mismatch. Export businesses face 60-90 day GST refund cycles locking significant cash.
Is EBITDA = cash flow?
No. EBITDA excludes interest, tax, depreciation, amortisation but doesn’t adjust for WC changes or capex. EBITDA can grow while CFO stagnates (Vodafone Idea pre-AGR). Always check CFO and FCF, not just EBITDA.
What’s cash burn and runway?
Cash burn = monthly cash outflow exceeding inflow. Runway = cash balance ÷ monthly burn. ₹10 cr cash + ₹1 cr/month burn = 10-month runway. Below 6 months = critical.
How do I read a cash flow statement quickly?
Three-line check: (1) Is CFO positive and ≥ Net Profit + Depreciation? (2) Is FCF (CFO − Capex) positive across cycle? (3) Is CFF mostly debt repayment/dividends, not fresh fundraising? Yes to all three = healthy.
What’s working capital impact on cash flow?
Increase in inventory/receivables CONSUMES cash (CFO reduction). Increase in payables RELEASES cash (CFO increase). Tight WC management directly improves CFO.
Why do startups have negative FCF for years?
Aggressive growth = heavy capex + high CAC + scaling WC. Negative FCF is acceptable if backed by equity rounds and trending towards profitability. Unhealthy if requiring perpetual fundraising with no path to FCF positive.
How is cash flow used in DCF valuation?
DCF (Discounted Cash Flow) values a company as PV of future free cash flows. Terminal value (perpetuity growth) typically forms 60-80% of total enterprise value. Sensitivity to growth rate and discount rate is high.
What’s quality of earnings ratio?
CFO / Net Profit. Should be ≥1 for sustainable earnings. Below 0.7 over multiple years suggests aggressive accounting or working capital deterioration. Quality ratios trending down = warning sign.
Should I prepay vendors to improve relationships?
Only if you get tangible benefit: cash discount (≥2%), priority allocation in shortage, or business continuity insurance. Otherwise paying late as per terms preserves your cash.
What’s the difference between operating cash flow and free cash flow?
CFO is cash from operations before any investment in PP&E. FCF subtracts maintenance capex (some definitions include growth capex too). FCF is what’s available for dividends, buybacks, and debt repayment after the business has maintained itself.