A company's value is determined by the present value of its future cash flows. Analyzing a company's cash flow figures, such as net cash flow and cumulative cash flow, will help an analyst forecast the company's future cash flows. All of the cash flow figures of a company are found on the cash flow statement.
Net Cash Flow
Net cash flow is simply cash inflows minus cash outflows over a given period. For example, a company had cash receipts of one million dollars and cash expenditures of two million dollars last year. The net cash flow figure is simply one million dollars minus two million dollars for a net figure of negative one million dollars.
Cumulative Cash Flow
The cumulative cash flow is a term that can be used for projects or a company. Cumulative cash flow is calculated by adding all of the cash flows from the inception of a company or project. For example, a company began operating three years ago. The cash flow in year one was five million dollars, the cash flow in year two was four million dollars and the cash flow in year three was six million dollars. The cumulative cash flow for the company is five million dollars plus four million dollars plus six million dollars for a total of $15 million.
Although both net cash flow and cumulative cash flow are cash flow terms, they have different meanings. Net cash flow is simply the cash receipts minus cash disbursements over one period while cumulative cash flow is the sum of all of the net cash flows that have been generated by a company since inception. Analyzing cumulative cash flow may help reveal the long term strength of a company versus just analyzing net cash flow, which will probably be on a very short time horizon.
Cash Flow Statement
The cash flow statement is one of the four required financial statements under the generally accepted accounting principles, or GAAP. It is divided into three sections: operating, investing and financing. The operating section contains all of the cash transactions related to the day-to-day operations of a business. The investing section contains cash transactions related to the purchasing of capital equipment, acquisitions and buying stakes in companies. The financing section contains the a company's cash transactions with its capital providers. Transactions included in the financing section are share repurchases, debt repayments and share offerings.
Alex Shadunsky has a bachelor's degree in finance and is pursuing a Master of Business Administration from Indiana University. He has worked at Briefing.com as a junior equity analyst specializing in health-care stocks.