*** Welcome to piglix ***

Cash flow


A cash flow describes a real or virtual movement of money:

Cash flows are narrowly interconnected with the concepts of value, interest rate and liquidity. A cash flow that shall happen on a future day tN can be transformed into a cash flow of the same value in t0.

Cash flows are often transformed into measures that give information e.g. on a company's value and situation:

Cash flow notion is based loosely on cash flow statement accounting standards. the term is flexible and can refer to time intervals spanning over past-future. It can refer to the total of all flows involved or a subset of those flows. Subset terms include net cash flow, operating cash flow and free cash flow.

The (total) net cash flow of a company over a period (typically a quarter, half year, or a full year) is equal to the change in cash balance over this period: positive if the cash balance increases (more cash becomes available), negative if the cash balance decreases. The total net cash flow for a project is the sum of cash flows that are classified in three areas

so how to calculate operating cash flow of a project? OCF=incremental earnings+depreciation=( earning before interest and tax-tax)+depreciation=earning before interest and tax*( 1-tax rate)+ depreciation= ( revenue - cost of good sold- operating expense- depreciation)* (1-tax rate)+depreciation= ( Revenue - cost of good sold- operating expense)* (1-tax rate)+ depreciation* tax. By the way, depreciation*tax which locates at the end of the formula is called depreciation shield through which we can see that there is a negative relation between depreciation and cash flow.

The sum of the three component above will be the cash flow for a project.

And the cash flow for a company also include three parts:

The sum of the three components above will be the total cash flow of a company.

The net cash flow only provides a limited amount of information. Compare, for instance, the cash flows over three years of two companies:

Company B has a higher yearly cash flow. However, Company A is actually earning more cash by its core activities and has already spent 45M in long term investments, of which the revenues will only show up after three years.


...
Wikipedia

...