Cash Flow to Creditors Calculator

The Cash Flow to Creditors Calculator allows you to calculate the net change in a company's cash during a given period, understanding your Cash Flow to Creditors is particulalry useful if you are considering taking a business loan or encouraging investors as Cash Flow to Creditors reflects your company's ability to take on additional debt or expenses.

Cash Flow to Creditors Calculator
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Cash Flow to Creditors Calculator Results
Cash Flow to Creditors
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How is Cash Flow to Creditors Calculated?

Operating cash flow is the earnings before interest and taxes plus depreciation, minus taxes. The Cash Flow to Creditors equation reflects cash flow generated from periodic profit adjusted for depreciation (a non-cash expense) and taxes (which create a cash outflow).

Use the Cash Flow to Creditors Calculator to Assess the Borrowing Capacity of Your Business

Cash Flow to Creditors Calculator. This image provides details of how to calculate cash flow to creditors using a calculator, pen and notepad. By using the cash flow formula, the Cash Flow to Creditors Calculator provides a true calculation of the net amount of cash and cash-equivalents going in and out of a business

Every business has its financial liabilities, companies take up debts to meet their financial needs. Cash flow to creditors defines the value of profit that is paid to the debt holders during an accounting period.

Cash flows are the net amount of cash and cash-equivalents going in and out of a business. Positive cash flow indicates that a company's financial liquidity is increasing. On the other hand negative cash flows are indicators of a company's declining liquid assets. Let's dig deeper into the concept of cash flows.

The Definition and Importance of Cash Flow

Cash flow can be defined as a reflection of your business checking account. Cash inflow is the money coming in from the customers who purchase your products or services as well as from collection of account receivables. On the other hand, cash outflow is the money moving out of your business in the form of rent, utility payments, debt payments and taxes.

The cash flow defines the profitability of your business, in the positive cash flow is an indicator or your capacity of paying your bills on time in order to run your business smoothly, controversially, the negative cash flow can be a sign of danger that your business is running out of liquid cash.

The cash flow statements - Cash flows are recorded in the cash flow statement. All the cash inflows and outflows are recorded in order to maintain the financial books of a company. The cash flow statement is considered to be the most important financial statement because it follows the cash flows made by three main activities that are explained in the next paragraph.

Three types of cash flow activities in a business

The net cash flow of any business consisting of the following three main activities:

  • Operating activities: The occurred cash flow that is included in net business income is defined as operating activities cash flow this includes transactions such as: revenue generated from the sale of produced goods, cash paid for raw material and for merchandise etc.
  • Investing activities: This is the cash flow that is generated by expenses and revenue from non-current assets such as, revenue generated from the sale of land, or industrial equipment, and cash paid for investment purposes is considered a cash outflow from investing activities.
  • Financing activities: These are the activities that cause cash flow from noncurrent liabilities and owner's equity, for example: Stock sale and purchase, dividend payments, principal amount for long term debt etc.

The cash flow from financing activities are mainly cash flows to the creditors. The calculation of these cash flows can be done manually, however, it will be easier with the help of an online calculator. Let's see how it is done.

How to calculate cash flow to creditors using the calculator

The cash flow to creditors calculator uses the following formula:

Cash flow to Creditor = Interest paid - Ending long term debt + Beginning long term debt

The same details are required for the calculations. Below is the explanation of the components of the formula:

  • Interest Paid: This is the total value that you have paid as interest on the total liabilities during an accounting period.
  • Ending long term debt: End value of your long term debt in an accounting period.
  • Beginning long term debt: The beginning value of a long term debt.

On the basis of the above mentioned inputs the calculator will provide you with the value for cash flow to creditors and you may take advantage of this calculator in several as defined in the next section.

Benefits of using the calculator

  • Your borrowing needs: Knowing the value of your cash flow to creditors shows if you can afford to take on more debt in order to grow your business by investing in new projects or perhaps changing or improving the infrastructure.
  • Easy to use: The calculator is an online tool, that is time saving and easy to use. You just have to input the correct date in order to get accurate results.
  • Attracting new investors: The lower cash flow to creditors ratio is a sign that your company is doing well in terms of credit. Facts like these can be attractive for potential investors.
  • Reflection of profitability: Cash flow to creditors can also be a sign that your company is being profitable or if you need to work towards reducing debts in order to gain profitability over the next account period.

Cash flow to creditors can be a really useful ratio to determine the borrowing capacity of your business. This can be helpful in managing your current operations and can have a big impact on future financial planning of your business.