Real‑world examples of cash flow from operating activities example calculation

Before we touch formulas, let’s jump straight into examples of cash flow from operating activities example calculation and why they matter.

Imagine two companies:

• Company A reports a healthy profit but is constantly short on cash.
• Company B reports modest profit but always has cash available to pay suppliers and staff.

On paper, A looks better. In reality, B is safer. The difference is in the cash flow from operating activities. That section of the cash flow statement shows how much cash the core business actually produces, after you adjust for non‑cash items and working capital swings.

Accounting standards like U.S. GAAP and IFRS both allow you to present operating cash flow using the indirect method, which is what most companies use. The U.S. Securities and Exchange Commission (SEC) has a helpful overview of cash flow statement requirements here: sec.gov. We’ll stick with the indirect method throughout our examples.

Core structure behind every example of operating cash flow

Every one of our examples of cash flow from operating activities example calculation follows the same backbone:

• Start with Net income from the income statement.
• Add back non‑cash expenses (depreciation, amortization, stock‑based compensation, impairment).
• Adjust for gains/losses that belong in investing or financing (like gain on sale of equipment).
• Adjust for changes in working capital:
  • Accounts receivable
  • Inventory
  • Prepaid expenses
  • Accounts payable
  • Accrued expenses and other current liabilities

The formula (indirect method) can be written as:

Cash flow from operating activities
= Net income

• Non‑cash expenses
  ± Non‑operating gains/losses
  ± Changes in working capital

Now let’s bring this to life with several detailed, real‑style examples of how this plays out.

Example 1: Retailer with rising inventory

This is one of the best examples of how a profitable business can still bleed cash.

Background
A mid‑size clothing retailer for the year ended 2024:

• Net sales: $5,000,000
• Net income: $400,000
• Depreciation expense: $150,000
• No amortization or stock‑based compensation

Balance sheet changes (2023 to 2024):

• Accounts receivable: from \(300,000 to \)350,000 → +50,000
• Inventory: from \(800,000 to \)1,100,000 → +300,000
• Prepaid expenses: from \(50,000 to \)60,000 → +10,000
• Accounts payable: from \(500,000 to \)620,000 → +120,000
• Accrued expenses: from \(200,000 to \)230,000 → +30,000

Now walk through the example of operating cash flow calculation:

1. Start with net income: $400,000

2. Add non‑cash items:

   • Depreciation: +150,000
     Subtotal: $550,000

3. Adjust for working capital:

   • Accounts receivable increased by 50,000 → –50,000 (customers owe more; less cash)
   • Inventory increased by 300,000 → –300,000 (cash tied up in stock)
   • Prepaid expenses increased by 10,000 → –10,000
   • Accounts payable increased by 120,000 → +120,000 (you’re using supplier credit)
   • Accrued expenses increased by 30,000 → +30,000

Working capital net effect:
−50,000 −300,000 −10,000 +120,000 +30,000 = −210,000

4. Operating cash flow:
   550,000 − 210,000 = $340,000

So even though the retailer reported \(400,000 of profit, the cash flow from operating activities is only \)340,000. Inventory growth soaked up $300,000 of cash. This is one of the clearest examples of cash flow from operating activities example calculation showing how growth can quietly drain liquidity.

Example 2: SaaS startup with strong cash but low profit

Software and subscription businesses give some of the best examples of timing differences between revenue and cash.

Background (2025)
A SaaS company sells annual subscriptions, paid upfront:

• Revenue: $2,500,000
• Net income: $150,000
• Depreciation & amortization: $40,000
• Stock‑based compensation: $110,000

Balance sheet changes:

• Accounts receivable: from \(200,000 to \)180,000 → −20,000
• Deferred revenue (contract liabilities): from \(600,000 to \)900,000 → +300,000
• Prepaid expenses: from \(80,000 to \)70,000 → −10,000
• Accounts payable: from \(150,000 to \)130,000 → −20,000

Now the example of operating cash flow math:

1. Net income: $150,000

2. Add non‑cash items:

   • Depreciation & amortization: +40,000
   • Stock‑based compensation: +110,000
     Subtotal: $300,000

3. Working capital adjustments:

   • Accounts receivable decreased by 20,000 → +20,000 (you collected more cash)
   • Deferred revenue increased by 300,000 → +300,000 (cash collected before revenue)
   • Prepaid expenses decreased by 10,000 → +10,000
   • Accounts payable decreased by 20,000 → −20,000

Net working capital effect:
+20,000 +300,000 +10,000 −20,000 = +310,000

4. Operating cash flow:
   300,000 + 310,000 = $610,000

Here, the SaaS firm reports modest profit but generates $610,000 of cash from operating activities. This is one of the best examples of examples of cash flow from operating activities example calculation where operating cash far exceeds net income because customers pay upfront.

For context on how subscription revenue and deferred revenue work under modern accounting rules, see resources from the Financial Accounting Standards Board (FASB) at fasb.org.

Example 3: Manufacturer with depreciation and equipment sale

Manufacturing companies often provide richer real examples because they combine heavy depreciation with occasional asset sales.

Background (2024)
A small manufacturer:

• Net income: $900,000
• Depreciation expense: $400,000
• Gain on sale of equipment: $50,000 (included in net income)

Balance sheet changes:

• Accounts receivable: from \(1,000,000 to \)1,150,000 → +150,000
• Inventory: from \(2,000,000 to \)1,900,000 → −100,000
• Accounts payable: from \(1,200,000 to \)1,050,000 → −150,000
• Accrued liabilities: from \(300,000 to \)340,000 → +40,000

Step‑by‑step example of operating cash flow:

1. Net income: $900,000

2. Add non‑cash items:

   • Depreciation: +400,000
     Subtotal: $1,300,000

3. Remove non‑operating gain:

   • Gain on sale of equipment: −50,000 (the cash from the sale goes in investing activities)

Adjusted subtotal: $1,250,000

4. Working capital:

   • Accounts receivable increased by 150,000 → −150,000
   • Inventory decreased by 100,000 → +100,000
   • Accounts payable decreased by 150,000 → −150,000
   • Accrued liabilities increased by 40,000 → +40,000

Net effect: −150,000 +100,000 −150,000 +40,000 = −160,000

5. Operating cash flow:
   1,250,000 − 160,000 = $1,090,000

This manufacturer’s cash flow from operating activities is higher than net income thanks to large depreciation, even after stripping out the gain on equipment sale.

If you want to see similar examples of cash flow from operating activities example calculation in public filings, scan the cash flow statements of industrial companies in the SEC’s EDGAR database at sec.gov/edgar.

Example 4: High‑growth e‑commerce business

E‑commerce gives some interesting real examples because marketing spend and rapid inventory changes can whipsaw cash.

Background (2025)
An online retailer:

• Net income: $250,000
• Depreciation & amortization: $80,000
• Non‑cash marketing credits (contra‑revenue incentives expensed but non‑cash this period): $20,000

Balance sheet changes:

• Accounts receivable: from \(100,000 to \)160,000 → +60,000
• Inventory: from \(500,000 to \)650,000 → +150,000
• Prepaid advertising: from \(40,000 to \)20,000 → −20,000
• Accounts payable: from \(300,000 to \)420,000 → +120,000

Operating cash flow calculation:

1. Net income: $250,000

2. Add non‑cash items:

   • Depreciation & amortization: +80,000
   • Non‑cash marketing credits: +20,000
     Subtotal: $350,000

3. Working capital:

   • Accounts receivable increased by 60,000 → −60,000
   • Inventory increased by 150,000 → −150,000
   • Prepaid advertising decreased by 20,000 → +20,000
   • Accounts payable increased by 120,000 → +120,000

Net effect: −60,000 −150,000 +20,000 +120,000 = −70,000

4. Operating cash flow:
   350,000 − 70,000 = $280,000

Here, rapid inventory build eats cash, while stretching payables provides temporary relief. This is one of the more realistic examples of cash flow from operating activities example calculation for online sellers ramping up ahead of peak season.

Example 5: Mature utility with stable cash flow

Utilities often provide clean examples include steady operating cash, even if growth is slow.

Background (2024)
A regional electric utility:

• Net income: $1,200,000
• Depreciation: $900,000
• Amortization of deferred costs: $100,000

Balance sheet changes:

• Accounts receivable: from \(800,000 to \)780,000 → −20,000
• Other current assets: from \(300,000 to \)310,000 → +10,000
• Accounts payable: from \(600,000 to \)590,000 → −10,000
• Accrued expenses: from \(400,000 to \)450,000 → +50,000

Operating cash flow:

1. Net income: $1,200,000

2. Add non‑cash items:

   • Depreciation: +900,000
   • Amortization: +100,000
     Subtotal: $2,200,000

3. Working capital:

   • Accounts receivable decreased by 20,000 → +20,000
   • Other current assets increased by 10,000 → −10,000
   • Accounts payable decreased by 10,000 → −10,000
   • Accrued expenses increased by 50,000 → +50,000

Net effect: +20,000 −10,000 −10,000 +50,000 = +50,000

4. Operating cash flow:
   2,200,000 + 50,000 = $2,250,000

This utility’s examples of cash flow from operating activities example calculation show a classic pattern: high non‑cash depreciation on infrastructure assets, stable receivables, and predictable cash.

Example 6: Company with net loss but positive operating cash

One of the most misunderstood real examples is when a company reports a loss but still generates cash.

Background (2025)
A consumer app company:

• Net loss: −$300,000
• Depreciation & amortization: $60,000
• Stock‑based compensation: $240,000

Balance sheet changes:

• Accounts receivable: from \(90,000 to \)70,000 → −20,000
• Deferred revenue: from \(50,000 to \)110,000 → +60,000
• Prepaid expenses: from \(40,000 to \)35,000 → −5,000
• Accounts payable: from \(120,000 to \)150,000 → +30,000

Operating cash flow walk‑through:

1. Net loss: −$300,000

2. Add non‑cash items:

   • Depreciation & amortization: +60,000
   • Stock‑based compensation: +240,000
     Subtotal: $0

3. Working capital:

   • Accounts receivable decreased by 20,000 → +20,000
   • Deferred revenue increased by 60,000 → +60,000
   • Prepaid expenses decreased by 5,000 → +5,000
   • Accounts payable increased by 30,000 → +30,000

Net effect: 20,000 + 60,000 + 5,000 + 30,000 = +115,000

4. Operating cash flow:
   0 + 115,000 = $115,000

Even with a reported loss, this company generated $115,000 of operating cash. This is one of the best examples of cash flow from operating activities example calculation for startups paying employees partly in equity and collecting subscription cash upfront.

How to read these examples for 2024–2025 trends

Looking across these examples of cash flow from operating activities example calculation, a few 2024–2025 patterns stand out:

• Subscription and SaaS models: More revenue is subscription‑based, so deferred revenue and contract liabilities are critical. In our SaaS and app examples include big positive contributions from deferred revenue.
• Working capital stress: Higher interest rates since 2022 have made short‑term financing more expensive. Companies are pushing to collect receivables faster and stretch payables, which you can see directly in operating cash flow.
• Stock‑based compensation: Especially in tech, stock‑based pay is a major non‑cash item. It boosts operating cash flow relative to net income, as in our startup examples of.
• Inventory risk: Retailers and manufacturers in 2024–2025 are trying to avoid the over‑stocking pain they felt during the pandemic supply chain chaos. Big swings in inventory remain a core driver of operating cash.

For a deeper look at how cash flow interacts with business health and failure risk, the U.S. Small Business Administration (SBA) offers guidance on cash management at sba.gov.

FAQ: examples of operating cash flow in practice

Q1. Can you give a simple example of cash flow from operating activities?
Yes. Take a small consulting firm:

• Net income: $80,000
• Depreciation: $10,000
• Accounts receivable increased by $15,000
• Accounts payable increased by $5,000

Operating cash flow = 80,000 + 10,000 − 15,000 + 5,000 = $80,000. That’s a stripped‑down example of the indirect method.

Q2. What examples of adjustments usually surprise beginners?
Two big ones in most examples of cash flow from operating activities example calculation are:

• Adding back depreciation and amortization, because they reduce profit but not cash.
• Adjusting for deferred revenue, which boosts cash before it boosts income.

Q3. Are gains on selling equipment part of cash flow from operating activities?
The gain or loss itself is adjusted out of operating cash flow, because the related cash is presented in investing activities. That’s why in the manufacturer example above, we subtracted the gain from operating cash flow.

Q4. Where can I see real examples from public companies?
You can browse real‑world examples of cash flow from operating activities example calculation in the cash flow statements of listed companies via the SEC’s EDGAR system at sec.gov/edgar. Look for the reconciliation from net income to “Net cash provided by operating activities.”

Q5. How do lenders use these examples of operating cash flow?
Banks and bond investors look at operating cash flow to judge whether a borrower can service debt. They often compare cash flow from operating activities to interest and principal payments. Strong operating cash flow, like in the utility and manufacturer examples, usually supports better credit terms.

Across all these scenarios, the pattern is the same: start with net income, strip out the accounting noise, and follow the working capital. Once you’ve walked through a few examples of cash flow from operating activities example calculation like these, reading a cash flow statement becomes far less mysterious and far more like reading a company’s real‑time health chart.