The Consolidated Statement of Cash Flows - A Key Financial Document Showing Combined Cash Flow Activities in Entities for Investors
Discounted Cash Flow (DCF) is a financial valuation method used to appraise investments, architectures in capital budgeting, and other expenditure decisions by analyzing the predicted cash flow stream (incomes and outflows) and discounting them to present values using a specific cost of capital or hurdle rate.
The comprehensive appraisal of a business or its assets, evaluating its liabilities, profitability, cash flow, policies, and compliance, typically conducted prior to a major transaction or stock exchange flotation.
The Internal Rate of Return (IRR) is the annualized effective compounded return rate or rate of return that makes the net present value of all cash flows (both positive and negative) from a particular project equal to zero.
In capital budgeting, the payback period estimates the time required to recover the initial investment from cash inflows generated by the project. The major limitation of this method is that it does not consider cash flows after the payback period and, thus, it's not a reliable measure of the overall profitability of an investment.
Positive cash flow refers to the amount of cash that a business generates from its operations, which exceeds the cash outflows. It is a critical indicator of financial health, showing that a company is capable of meeting its obligations, reinvesting in its operations, and paying dividends.
The time value of money (TVM) concept, key to discounted cash flow calculations, posits that cash received earlier is worth more than the same amount received later due to the potential earning capacity of money. Conversely, future payments are valued less than payments made in the present.
