Cash flow is a financial statement that summarises the inflows and outflows of cash into and from a business or organisation over a period of time. It’s used to gain an understanding of the liquidity and financial performance of a company to determine its financial stability.

Modelling cash flow using Excel has several benefits. Creating a cash flow model with Excel can help you to:

  • Visualise your cash flow and cash reserves
  • Compare past performance to perspectives
  • Gain an understanding of how strategies impact cash flow
  • Set up automated tracking of cash flow

Key Takeaways:
  • Visualise and compare your cash flow and cash reserves
  • Gain insight into how strategies affect cash flow
  • Set up automated tracking of cash flow
  • Make informed decisions on cash flow and business performance

Cash Flow Inputs

Cash flow modeling allows planners to predict future cash flows by incorporating revenue, expense, capital expenditure and other inputs. It is important to identify the relevant inputs and to accurately estimate them in order to envision a realistic projection of future earnings.


Revenues refer to all inflows of cash that a company expects to receive within a specific timeframe. This could include sale of products or services, rent and dividend payments. Revenues may vary from quarter to quarter due to seasonality or irregular events. It is important to be able to observe any potential shifts in the sales and revenue generation capacity of a company in order to realistically forecast future cash flows.


Expenses refer to all outflows of cash from a company in order to fund operations and projects. This includes but is not limited to staff salaries, rent, utilities, raw material costs and taxes. As the changes in expenses directly have a negative effect on the cash flow, it is important to observe potential variations in expenses in order to accurately predict future cash flow.

Capital Expenditures

Capital Expenditures refer to outlays made on company assets that help maintain and increase the earnings capacity of a company. This could include purchases of new machinery, investment in new technology or acquisition of new company. An accurate estimate of capital expenditures will allow a planner to factor their effect on the cash position of a company.


Apart from the above-mentioned inputs, there are several other factors that affect the cash flow of a company such as government incentives, repayment of loans, currency exchange rates, etc. It is important to observe any such factors in order to have an accurate assessment of future cash flows.

  • Revenues: Inflows of cash expected from sale of products/services, rent, and dividend payments.
  • Expenses: Outflows of cash from a company to fund its operations and projects.
  • Capital Expenditures: Outlays made on company assets to maintain and increase the earnings capacity of a company.
  • Other: Government incentives, repayment of loans, currency exchange etc.

Cash Flow Statements

It is important for businesses to understand their cash flows in order to make informed decisions. Cash flow statements, often referred to as statement of cash flows, are used to show the cash flow movements during an accounting period by disclosing the net increase or decrease in cash. This statement is derived from the income statement, balance sheet, and changes in equity.


Cash flow statements provide insight into the cash available to a company for operations, investments, and financing. Each cash flow item contained in the statement is categorized into one of the following three activities: operating, investing, or financing. Operating activities are related to the day-to-day activities of running a business and include cash flows from sales, payments for goods and services, and other activities such as collections from customers. Investing activities involve acquisition and disposal of long-term assets and investments, such as buying or selling property, plant, and equipment. Financing activities include cash flows related to borrowing and repayment of debt, issuing or buying back of stock, and dividends to shareholders.

Operating Cash Flow

Operating cash flow is a measure of the cash generated (or used) by normal business operations. It is the difference between cash revenues and cash expenses, before considering investment and financing activities. Operating cash flow is useful in assessing the financial health of a company, as it reflects the ability to generate cash through its operations.

Investing Cash Flow

Investing cash flow measures a company's cash activities relating to investments in long-term assets such as property, plant, and equipment, and investments in securities such as stocks, bonds, and mutual funds. It also measures cash flows from the disposal of assets, buying or selling of businesses, or investment in venture capital.

Financing Cash Flow

Financing cash flow includes cash activities related to obtaining financing for a company's operations. These activities include cash flows from the issuance of debt and equity, loan financing, repayment of debt, and dividends paid to shareholders. Financing activities also include the issuance of debt, the repurchase of stock, and the return of capital.

Model cash flows in Excel is possible by setting up a Cash Flow Statement worksheet. On the left side of the worksheet is the Cash Receipts column, which includes all cash inflows from sales, investments, loans, and other financing activities. On the right side of the worksheet is the Cash Payments column, which includes all cash outflows for operations, investments, loan payments, and other financing activities. By comparing the total receipts and total payments, you can calculate the net cash flow for the period.

Cash Flow Modelling

Cash Flow Modelling is a process used to project the financial flows of an organisation. It is used to simulate the future financial direction of a firm or a business in order to assist with decision-making. Cash Flow Modelling can be used to predict the effects of scenarios and help you to create plans to ensure financial stability over time. Excel is a powerful tool that can be used to model cash flow and this article will explore the process of cash flow modelling as well as techniques for using Excel.


A cash flow model is a presentation or representation of an organisation’s future financial performance. It can be used to evaluate the impact of certain scenarios and make decisions about how best to manage those scenarios. Cash Flow Modelling includes projections for revenues, expenses, net income, capital expenditures and investments, as well as assumptions about the firm’s growth and overall position in the market. By tracking these and other metrics over time, a cash flow model can be used to assess and evaluate the financial health of an organisation.

Use of Formulae

Excel is a powerful tool for Cash Flow Modelling, and offers a variety of features to support the process. It can be used to track and measure financial performance, and the use of formulae can help to automate the process. Formulae can be used to simplify and standardise the calculation of cash flow data. These formulae can be used to calculate and track total cash flow, cash balance, and projected net income, among other things. Formulae offer users a way to manage large datasets quickly and efficiently.

Working with Data Tables

Data tables also serve as a useful tool when modelling cash flow. Data tables can be used to display the effects of different values in different cells in the sheet. This allows for flexible modelling of cash flow scenarios and helps to visualise the impact of changes on the projected financial performance. Data Tables can also be used to bring together information from different sources, making it easier to compare and contrast different cash flow scenarios.

Additional Features

Excel offers a wide range of additional features for cash flow modelling. This includes tools for formatting data, creating charts and graphs, as well as various functions for performing operations such as summing cells and calculating proportions. Excel also allows users to share documents with other users and collaborate on models. These features offer users the flexibility to model and interpret a variety of scenarios, so they can make the best decisions based on their data.

Best Practices for Cash Flow Modelling

Cash flow modelling is an integral part of any financial planning process. It is a method of estimating the amount of money going in and out of a business or project model in a given period. Cash flow modelling involves creating assumptions, preparing data inputs, and running sensitivity scenarios to arrive at a result. To ensure the best outcomes, it is essential to follow certain best practices.

Ensure Accurate Inputs

It is very important to ensure the accuracy of the inputs while modelling a cash flow. This can be practically achieved by double-checking the authenticity of the data used, verifying the amount and title of the accounts in the model, and reconciling the accounts. Moreover, it is crucial to make sure that the inputs used are consistent with the ongoing financial trends.

Analyze Sensitivity of Assumptions

Sensitivity analysis is another key component of cash flow modelling. It is a process that’s used to assess how varying the assumptions in the model will affect the output. This helps to identify various scenarios that can positively or negatively affect the financial model. It helps to understand the risk factors in the model and helps to build assumptions that are in line with the business objectives.

Document the Process Thoroughly

When it comes to cash flow modelling, documenting the process is just as important as modeling it. This document can be very useful for future revisions as it may highlight changes or additional factors that need to be included. Moreover, well-documented cash flow modelling can help to demonstrate compliance with generally accepted accounting principles (GAAP) to various regulatory bodies.

  • Ensure Accurate Inputs
  • Analyze Sensitivity of Assumptions
  • Document the Process Thoroughly

Risk Management

Cash flow modeling is an important tool for businesses when it comes to accurately predicting and monitoring profits and losses in order to make informed financial decisions. However, despite the best intentions and forecasting efforts, there’s always a chance of financial losses being realized due to unforeseen events and other factors. Risk management is the process of identifying and assessing potential risks to the business, and implementing strategies to proactively mitigate these risks in order to protect business finances and objectives.

Mitigating Risk Factors

When it comes to cash flow modeling, risk management is key in avoiding and minimizing unexpected losses. An effective risk management strategy should identify, prioritize, and mitigate any potential risks. This involves looking at different types of risks, including:

  • Financial risks – potential losses due to changes in interest rates, currency exchange rates, fluctuations in the stock market, etc.
  • Operational risks – potential losses due to inefficient processes, inadequate controls, etc.
  • Strategic risks – potential losses due to poor planning and decision-making.

Once potential risks have been identified, they should be prioritized based on their potential impacts on the business. For each risk, mitigation strategies can then be put in place in order to reduce their likelihood and cost of occurrence.

Planning for the Unexpected

Managing risk also involves preparing for potential risk scenarios. This involves calculating the potential cost and/or duration of each risk scenario and creating contingency plans to deal with them. Planning for the unexpected is a crucial part of cash flow modeling, and having a contingency plan in place will help minimize losses in the event of an unforeseen incident.

Overall, effective risk management is an essential part of cash flow modeling, as it helps protect the business from potential losses and ensures that profitability is maintained. By proactively mitigating risk factors and planning for the unexpected, businesses can more accurately predict and manage their cash flows.


Cash flow modelling is a critical task for financial managers and can be a complex process. It is important to have an in-depth understanding of cash flow, cash flow cycles and cash flow forecasting methods in order to properly model cash flow in Excel. By using the various Excel features, cash flow modelling can become more straightforward and yield more accurate results. Understanding how to break down the cash flow into its components, such as operating activities, investing activities, and financing activities, will help to develop a comprehensive cash flow model that can be used to identify trends, create projections, and make better-informed business decisions.

Cash flow modelling is an important skill for any financial professional and can be done efficiently and accurately using Excel. With the right understanding and technique, cash flow modelling can be made much simpler and robust to yield reliable results.

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