Retained cash flow builds on net income but adds back non-cash expenses and subtracts cash dividends paid. It provides a clearer view of actual cash retention than accounting earnings alone.
Retained Cash Flow = Net Income + Depreciation & Amortization – Dividends Paid
In simpler terms, RCF shows how much free cash a business retains after honoring its financial obligations and rewarding stakeholders.
Why Retained Cash Flow Matters
For government entities, nonprofits, and higher ed institutions, retained cash flow is a key indicator of financial sustainability. A positive RCF suggests an organization is generating enough cash to fund future operations or respond to unexpected needs without tapping into reserves or borrowing.
Lenders and credit rating agencies often look at retained cash flow as a sign of fiscal discipline. The higher your RCF, the better your ability to:
While free cash flow (FCF) measures cash available after capital expenditures, retained cash flow focuses on what's left after dividends.
Both metrics offer insight into liquidity, but RCF emphasizes how much cash the organization chooses to keep.
Retained cash flow is a simple but powerful metric that reveals how much cash your organization keeps after paying the bills and rewarding stakeholders. It’s a key measure of financial health and flexibility, especially for mission-driven entities that want to minimize reliance on external funding.
Understanding RCF can help you make more strategic decisions about investments, reserves, and long-term sustainability.