How to Figure Net Income From a Cash Flow Statement

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The cash flow statement is a formal financial report that outlines where income is coming from, and where it is being spent. Unlike the balance sheet and income statement, the cash flow statement does not include sales made on receivables so the net income amount appearing on this statement can be very different from the value that appears on other financial reports. The net income is typically reported at the beginning of the cash flow statement, and the adjusted income takes operating activities, investing activities and financing activities into account.

Things You'll Need

  • Cash flow statement
  • Income statement

Review the first line of the cash flow statement. Every cash flow statement begins with a declaration of net income which is the net earnings for that period. This value does not include Accounts Receivable, Operating Expenses or Accounts Payable and is taken directly from the income statement.

Determine Net Cash Flow from Operating Activities. Add the values of the following accounts: Increase in Accounts Receivable; Increase in Supplies; and Increase in Accounts Payable.

Determine cash flow from investing activities. List any purchases of land, building and other investment purchases to determine the total amount spent on investments.

Determine cash flow from financing activities. List any amounts invested, and the amount of money withdrawn from these accounts. The total amount here represents an increase or decrease in cash from financing activities.

Calculate an increase or decrease in cash, or adjusted income. Add the total vales for Cash Flow from Operating Activities, Cash Flow from Investing Activities, and Cash Flow from Financing Activities to determine if there has been an increase or decrease in cash. Add this value to the net income in Step 1 to determine the adjusted income for the period.

Tips & Warnings

  • Changes in cash from financing are designated as"cash in" when the company raises capital, and designated as "cash out" when dividends are paid.

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