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1 Business nancials
The (total) net cash ow 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
to evaluate the risks within a nancial product, e.g., ow is the sum of cash ows that are classied in three
matching cash requirements, evaluating default risk, areas:
re-investment requirements, etc.
cash ow can be used to evaluate the 'quality' of income generated by accrual accounting. When net
income is composed of large non-cash items it is
considered low quality.
Examples
The net cash ow only provides a limited amount of information. Compare, for example, the cash ows over three
years of two companies:
Company B has a higher yearly cash ow. 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.
See also
Cash ow sign convention
Cash ow hedge
Cash ow projection
Cash ow statement
Internal rate of return
Net present value
Return of capital
References
External links
International Federation of Accountants International Good Practice Guidance on Project Appraisal
Using Discounted Cash Flow
A Review of Academic Research on the Reporting
of Cash Flows from Operations
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