Cash Flow to Creditors Calculator
This tool calculates the Cash Flow to Creditors (CFtC) for a specific period. CFtC represents the cash flow between the company and its debt holders, specifically the interest payments made and the net effect of new debt issued versus existing debt repaid.
Enter the values for Interest Paid, Total Debt Issued, and Total Debt Repaid for the period you are analyzing. Use consistent currency units.
Enter Financial Data for the Period
Understanding Cash Flow to Creditors (CFtC) & Formula
What is Cash Flow to Creditors?
Cash Flow to Creditors (CFtC) is a component of Free Cash Flow to Firm (FCFF) calculation. It measures the cash flow between a company and its debt holders (creditors) during a specific period. It accounts for the cash outflows for interest payments and the net effect of debt principal transactions (new debt vs. repaid debt).
Cash Flow to Creditors Formula
The formula for Cash Flow to Creditors is:
CFtC = Interest Paid - Net New Borrowing
Where:
- Interest Paid: The actual cash outflow for interest expenses during the period. This is usually found in the operating activities section of the cash flow statement or supplemental disclosures. (Note: This is *not* the same as Interest Expense on the income statement, which may include non-cash items or accruals).
- Net New Borrowing: The difference between the cash received from issuing new debt and the cash paid out to repay existing debt principal during the period. This is found in the financing activities section of the cash flow statement or calculated as `Total Debt Issued - Total Debt Repaid`. It represents the net change in the principal amount of debt from the creditors' perspective (positive means they injected cash into the company; negative means the company returned cash to them).
Substituting Net New Borrowing:
CFtC = Interest Paid - (Total Debt Issued - Total Debt Repaid)
Or, rearranged:
CFtC = Interest Paid - Total Debt Issued + Total Debt Repaid
The term "Cash Flow *to* Creditors" implies a flow *out* of the company *to* the creditors. Interest Paid is clearly a cash outflow from the company to creditors, so it is positive in the formula. Total Debt Issued represents cash *in* to the company from creditors, so it reduces the net cash flow *to* creditors (hence subtracted). Total Debt Repaid represents cash *out* from the company to creditors, so it increases the net cash flow *to* creditors (hence added, or subtracted as part of the negative Net New Borrowing).
Cash Flow to Creditors Examples
Click on an example to see the calculation:
Example 1: Standard Case
Scenario: A company pays interest, issues some new debt, and repays some old debt.
1. Known Values: Interest Paid = $100,000, Total Debt Issued = $500,000, Total Debt Repaid = $300,000.
2. Net New Borrowing: $500,000 (Issued) - $300,000 (Repaid) = $200,000.
3. Formula: CFtC = Interest Paid - Net New Borrowing
4. Calculation: CFtC = $100,000 - $200,000 = -$100,000.
5. Result: CFtC = -$100,000.
Conclusion: The company had a net cash flow *from* creditors of $100,000 during this period (due to receiving more cash from new debt than it paid out for interest and principal repayment).
Example 2: Net Debt Repayment
Scenario: A company pays interest and focuses on reducing its debt principal.
1. Known Values: Interest Paid = $80,000, Total Debt Issued = $100,000, Total Debt Repaid = $250,000.
2. Net New Borrowing: $100,000 (Issued) - $250,000 (Repaid) = -$150,000.
3. Formula: CFtC = Interest Paid - Net New Borrowing
4. Calculation: CFtC = $80,000 - (-$150,000) = $80,000 + $150,000 = $230,000.
5. Result: CFtC = $230,000.
Conclusion: The company had a net cash flow *to* creditors of $230,000, primarily driven by significant debt repayment.
Example 3: Only Interest Paid
Scenario: No changes in debt principal during the period, only interest payments.
1. Known Values: Interest Paid = $60,000, Total Debt Issued = $0, Total Debt Repaid = $0.
2. Net New Borrowing: $0 (Issued) - $0 (Repaid) = $0.
3. Formula: CFtC = Interest Paid - Net New Borrowing
4. Calculation: CFtC = $60,000 - $0 = $60,000.
5. Result: CFtC = $60,000.
Conclusion: The cash flow to creditors is simply equal to the interest paid when there is no net change in debt principal.
Example 4: Significant New Debt, Little Interest
Scenario: A new company takes out a large loan but has minimal interest paid in its first short period.
1. Known Values: Interest Paid = $5,000, Total Debt Issued = $1,000,000, Total Debt Repaid = $0.
2. Net New Borrowing: $1,000,000 (Issued) - $0 (Repaid) = $1,000,000.
3. Formula: CFtC = Interest Paid - Net New Borrowing
4. Calculation: CFtC = $5,000 - $1,000,000 = -$995,000.
5. Result: CFtC = -$995,000.
Conclusion: The company received a large net cash inflow from creditors ($995,000) by taking on significant new debt.
Example 5: Zero Interest Paid, Debt Repayment
Scenario: A company has paid off its interest but makes a principal repayment on existing debt.
1. Known Values: Interest Paid = $0, Total Debt Issued = $0, Total Debt Repaid = $50,000.
2. Net New Borrowing: $0 (Issued) - $50,000 (Repaid) = -$50,000.
3. Formula: CFtC = Interest Paid - Net New Borrowing
4. Calculation: CFtC = $0 - (-$50,000) = $50,000.
5. Result: CFtC = $50,000.
Conclusion: The cash flow to creditors is positive ($50,000) because the company paid down debt principal.
Example 6: Balancing Act (Issued = Repaid)
Scenario: Company issues new debt exactly equal to the debt principal it repays, while also paying interest.
1. Known Values: Interest Paid = $75,000, Total Debt Issued = $200,000, Total Debt Repaid = $200,000.
2. Net New Borrowing: $200,000 (Issued) - $200,000 (Repaid) = $0.
3. Formula: CFtC = Interest Paid - Net New Borrowing
4. Calculation: CFtC = $75,000 - $0 = $75,000.
5. Result: CFtC = $75,000.
Conclusion: Net debt principal is unchanged, so CFtC equals only the interest paid.
Example 7: All Zeroes
Scenario: A company with no debt or debt activity in the period.
1. Known Values: Interest Paid = $0, Total Debt Issued = $0, Total Debt Repaid = $0.
2. Net New Borrowing: $0 - $0 = $0.
3. Formula: CFtC = Interest Paid - Net New Borrowing
4. Calculation: CFtC = $0 - $0 = $0.
5. Result: CFtC = $0.
Conclusion: With no debt-related cash flows, CFtC is zero.
Example 8: Large Numbers
Scenario: Calculating CFtC for a large corporation.
1. Known Values: Interest Paid = $50,000,000, Total Debt Issued = $200,000,000, Total Debt Repaid = $150,000,000.
2. Net New Borrowing: $200,000,000 - $150,000,000 = $50,000,000.
3. Formula: CFtC = Interest Paid - Net New Borrowing
4. Calculation: CFtC = $50,000,000 - $50,000,000 = $0.
5. Result: CFtC = $0.
Conclusion: Despite significant activity, the net cash flow to creditors was zero in this period.
Example 9: Interest Only (No Debt Activity)
Scenario: A company only has interest payments during the period, with no principal transactions.
1. Known Values: Interest Paid = $35,000, Total Debt Issued = $0, Total Debt Repaid = $0.
2. Net New Borrowing: $0 - $0 = $0.
3. Formula: CFtC = Interest Paid - Net New Borrowing
4. Calculation: CFtC = $35,000 - $0 = $35,000.
5. Result: CFtC = $35,000.
Conclusion: CFtC is $35,000, representing only the cash outflow for interest.
Example 10: Heavy Debt Reduction
Scenario: A company significantly reduces its debt principal while also paying interest.
1. Known Values: Interest Paid = $40,000, Total Debt Issued = $50,000, Total Debt Repaid = $400,000.
2. Net New Borrowing: $50,000 - $400,000 = -$350,000.
3. Formula: CFtC = Interest Paid - Net New Borrowing
4. Calculation: CFtC = $40,000 - (-$350,000) = $40,000 + $350,000 = $390,000.
5. Result: CFtC = $390,000.
Conclusion: The cash flow to creditors is large and positive ($390,000) due to substantial debt repayment.
Frequently Asked Questions about Cash Flow to Creditors
1. What is Cash Flow to Creditors (CFtC)?
CFtC is a measure of the total cash flow between a company and its creditors (lenders) over a specific period. It includes interest payments flowing out of the company and the net amount of principal flowing in or out due to new borrowing and repayments.
2. What is the formula for CFtC?
The main formula is: Cash Flow to Creditors = Interest Paid - Net New Borrowing. Net New Borrowing is calculated as Total Debt Issued - Total Debt Repaid.
3. Why is Net New Borrowing subtracted?
The term "Cash Flow *to* Creditors" implies cash flowing *out* of the company *to* the creditors. Interest Paid is an outflow (positive in the formula). Net New Borrowing represents cash flowing *in* to the company *from* creditors. A cash inflow from creditors reduces the net cash flow *to* creditors, hence it is subtracted.
4. What does a positive CFtC mean?
A positive CFtC means that, over the period, the company paid out more cash to its creditors (in interest and net principal repayment) than it received from them (through new debt). This indicates a net cash outflow from the company to its lenders.
5. What does a negative CFtC mean?
A negative CFtC means that the company received more cash from its creditors (primarily through issuing new debt) than it paid out to them (for interest and principal repayment). This indicates a net cash inflow to the company from its lenders during the period.
6. Where can I find the data for this calculation?
Interest Paid is usually found in the operating activities section or supplemental disclosures of the Cash Flow Statement. Total Debt Issued and Total Debt Repaid are typically found in the financing activities section of the Cash Flow Statement.
7. Is "Interest Paid" the same as "Interest Expense"?
No. Interest Expense is an accrual-based figure from the Income Statement. Interest Paid is the actual cash outflow for interest during the period, found on the Cash Flow Statement. CFtC uses the cash figure (Interest Paid).
8. What types of debt are included in Total Debt Issued/Repaid?
This typically refers to principal amounts of interest-bearing debt, including short-term and long-term borrowings. It does not include operating liabilities like accounts payable.
9. How is CFtC used?
CFtC is a key component in calculating Free Cash Flow to Firm (FCFF), which represents the cash flow available to all investors (both debt and equity holders) of the company. It helps analysts understand the financial impact of a company's debt financing activities.
10. Can Net New Borrowing be calculated from changes in Balance Sheet debt?
While Net New Borrowing often approximates the change in the balance sheet debt level (`Ending Total Debt - Beginning Total Debt`), the Cash Flow Statement figures (Issued and Repaid) are preferred for CFtC as they represent actual cash flows and account for potential non-cash changes in debt (like amortization of discounts/premiums or fair value adjustments) which wouldn't be captured by just comparing balance sheets.
