CORPORATE FINANCE FINANCIAL STATEMENTS

Net Cash: What It Is and

How It's Calculated
By ALICIA TUOVILA Updated November 18, 2020

Reviewed by DAVID KINDNESS

What Is Net Cash?

Net cash is a figure that is reported on a company's
financial statements. It is calculated by subtracting a
company's total liabilities from its total cash. The
net cash figure is commonly used when evaluating a
company's cash flows. Net cash may also refer to the
amount of cash remaining after a transaction has
been completed and all associated charges and
deductions have been subtracted.

KEY TAKEAWAYS
Net cash, a figure that is reported on a
company's financial statements, is
calculated by subtracting a company's total
liabilities from its total cash.
The net cash figure is commonly used when
evaluating a company's cash flows.
Net cash may also refer to the amount of
cash remaining after a transaction has been
completed and all associated charges and
deductions have been subtracted.

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Net Cash

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Understanding Net Cash

Similar to the current ratio, net cash is a measure of
a company's liquidity—or its ability to quickly meet
its financial obligations. A company's financial
obligations can include standard operating costs,
payments on debts, or investment activities.

In order to calculate net cash, you must first add up

all cash (not credit) receipts for a period. This
amount is often referred to as "gross cash." Once
totaled, cash outflows paid out for obligations and
liabilities are deducted from gross cash; the
difference is net cash.

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When net cash is used in relation to stock investing,

it sometimes refers to an abbreviated version of the
term "net cash per share." Investors can use net cash
to help determine whether a company's stock is an
attractive investment.

Net Cash vs. Net Cash Flow

Net cash flow refers to either the gain or loss of
funds over a period (after all debts have been paid).
When a business has a surplus of cash after paying
all its operating costs, it is said to have a positive
cash flow. If the company is paying more for
obligations and liabilities than what it earns through
operations, it is said to have a negative cash flow.

A negative cash flow does not mean a company is

unable to pay all of its obligations; it just means that
the amount of cash received for that period was
insufficient to cover its obligations for that same
time period. If other savings vehicles are liquidated
to meet the obligation—or additional debt is
accrued that does not involve the receipt of a lump
sum deposit—a company can meet all of its
obligations while maintaining a negative cash flow.

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Analyzing what activities contribute to positive or

negative net cash is essential when using net cash as
a barometer for determining the financial health of a
company. Positive net cash from events such as
increased profits from sales, or reduced obligations,
can be indicative of a well-functioning, healthy
firm. However, certain activities may result in a
positive cash flow that may not reflect positively on
a company’s financial health, such as money
received as a result of incurring a new debt or
activities associated with a lump-sum loan deposit.

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Related Terms
Cash Flow: What It Is, How It Works,
and How To Analyze It
Cash flow is the net amount of cash and cash equivalents
being transferred into and out of a business. more

Financial Statements: List of Types and

How to Read Them
Financial statements are written records that convey the
business activities and the financial performance of a
company. more

How Net Debt Is Calculated and Why It

Matters to a Company
Net debt is a liquidity metric to determine how well a
company can pay all of its debts if they were due
immediately and shows how much cash would remain if all
debts were paid off. more

Operating Profit: How to Calculate,

What It Tells You, Example
Operating profit is the total earnings from a company's
core business operations, excluding deductions of interest
and tax. more

Equity for Shareholders: How It Works

and How to Calculate It
Equity typically refers to shareholders' equity, which
represents the residual value to shareholders after debts
and liabilities have been settled. more

Quick Ratio Formula With Examples,

Pros and Cons
The quick ratio is a calculation that measures a company’s
ability to meet its short-term obligations with its most
liquid assets. more

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