Cash inflows

Examples of Cash inflows in the following topics:

• Defining NPV

  • Net Present Value (NPV) is the sum of the present values of the cash inflows and outflows.
  • Every investment includes cash outflows and cash inflows.
  • In order to see whether the cash outflows are less than the cash inflows (i.e., the investment earns a positive return), the investor aggregates the cash flows.
  • Thus, in order to sum the cash inflows and outflows, each cash flow must be discounted to a common point in time.
  • NPV = 0: The PV of the inflows is equal to the PV of the outflows.

• Calculating the Payback Period

  • To calculate a more exact payback period: Payback Period = Amount to be initially invested / Estimated Annual Net Cash Inflow.
  • Start by calculating Net Cash Flow for each year: Net Cash Flow Year 1 = Cash Inflow Year 1 - Cash Outflow Year 1.
  • Then Cumulative Cash Flow = (Net Cash Flow Year 1 + Net Cash Flow Year 2 + Net Cash Flow Year 3 ... etc.)
  • Payback Period = Amount to be initially invested / Estimated Annual Net Cash Inflow.
  • They discount the cash inflows of the project by a chosen discount rate (cost of capital), and then follow usual steps of calculating the payback period.

• Day-to-Day Needs

  • Operating cash flow refers to the daily cash inflows and outflows generated from business revenues earned, excluding certain costs.
  • Business operations have daily cash inflows and outflows.
  • Cash inflows come from cash sales of inventory, collection of credit sales, sales of other assets, and funds obtained through credit financing.
  • Cash outflows occur due to cash payment of business expenses, purchase of assets, and payment on debt .
  • "Cash and cash equivalents" on the balance sheet are the most liquid assets found on this statement.

• Reporting Investing Activities

  • Cash flows due to changes in non-current assets or returns on investments must be determined to be inflows or outflows in order to be reported properly.
  • When reporting investing activities, it is important to be able to decipher a cash inflow from a cash outflow.
  • Examples of transactions involving cash inflows include:
  • In each of these cases, the account appropriate to the specific investment would be debited, and the Cash account would be credited, due to the decrease in cash.
  • The sale of a factory would be an example of a cash inflow from investment.

• Alternate Sources of Funds

  • The cash flow statement, which shows cash inflows and outflows for a specific reporting period and distinguishes between three types of activities that generate or use cash: operating, investing, and financing.
  • Operating activities that generate cash flows are:
  • Cash inflows from investing activities involve cash flows associated with non-current assets:
  • Financing activities include the inflow of cash from investors, such as banks and shareholders.
  • The cash flow statement shows cash inflows and outflows for a specific reporting period and distinguishes between three types of activities that generate or use cash: operating, investing, and financing.

• Cash Flow from Investing

  • One of the components of the cash flow statement is the cash flow from investing .
  • However, this cash flow is not representative of an investing activity on the part of the company.
  • Cash outflow from the purchase of an asset (land, building, equipment, etc.).
  • Cash inflow resulting dividends paid on stock owned in another company.
  • It is important to remember that, as with all cash flows, an investing activity only appears on the cash flow statement if there is an immediate exchange of cash.

• Preparation of the Statement of Cash Flows: Direct Method

  • For example, in order to find out the cash inflow from a customer we need to know the sales revenue, but the sales revenue is also affected by the accounts receivable account.
  • Cash flows refer to inflows and outflows of cash from activities reported on an income statement.
  • Cash outflows occur when operational assets are acquired, and cash inflows occur when assets are sold.
  • The direct method for calculating this flow involves deducting from cash sales only those operating expenses that consumed cash.
  • Once the cash inflows and outflows from operating activities are calculated, they are added together in the "Operating Activities" section of the cash flow statement to obtain the net cash flow for a company's operating activities.

• Introduction to the Statement of Cash Flows

  • The money coming into the business is called cash inflow, and money going out from the business is called cash outflow.
  • To show the affects on the inflows and outflows on a company, a statement of cash flow is used.
  • The statement of cash flows is cash based and it shows the actual inflows and outflows of cash for the given month.
  • The cash flow statement includes only inflows and outflows of cash and cash equivalents.
  • These include the cash inflows and outflows of all transactions related to core activities of the business.

• NPV Profiles

  • The NPV calculation involves discounting all cash flows to the present based on an assumed discount rate.
  • The NPV Profile assumes that all cash flows are discounted at the same rate.
  • While this is not necessarily true for all investments, it can happen because outflows generally occur before the inflows.
  • When the value of the outflows is greater than the inflows, the NPV is negative.
  • And it is the discount rate at which the value of the cash inflows equals the value of the cash outflows.

• Reporting Financing Activities

  • Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income.
  • Receiving the money is a positive cash flow because cash is flowing into the company, while each individual payment is a negative cash flow.
  • Non-cash financing activities may also be included on the cash flow statement as footnotes.
  • Exchanging non-cash assets or liabilities for other non-cash assets or liabilities; and
  • Or as inflows, the receipt of payments for such financing vehicles by outside investors.