Net Cash Flow

Definition

Net cash flow is a measure of economic income used as a basis in the Discounted Cash Flow business valuation method.

What It Means

For the purposes of small business valuation the net cash flow is what the business owners can remove from the business without adversely affecting its operations.

Net cash flow to total invested capital

Assuming that both debt and equity capital is used to fund business operations, the net cash flow is calculated as follows:

  • Start with the net after-tax income.
  • Add the depreciation and amortization expenses.
  • Add the after-tax portion of the interest expense.
  • Subtract the business capital expenses. Historic requirements can be found on the company’s Statement of Cash Flows.
  • Subtract increases in working capital.