Cash inflow

Definition

Cash inflow is the total amount of money being received by a business from its operating activities, investments, or financing during a specific period. It is critical for assessing liquidity and financial health in capital budgeting decisions.

5 Must Know Facts For Your Next Test

1. Cash inflows include revenues from sales, returns on investments, and funds received from financing activities.
2. Higher cash inflows improve a company’s ability to cover operational expenses and invest in new projects.
3. Evaluating cash inflows is essential in determining the payback period for capital investments.
4. In capital budgeting, projected cash inflows help determine the viability and profitability of long-term projects.
5. Accurate estimation of future cash inflows is crucial for calculating net present value (NPV) and internal rate of return (IRR).

Review Questions

• What are some common sources of cash inflow for a business?
• Why is it important to evaluate cash inflows when making capital investment decisions?
• How do projected cash inflows influence the payback period calculation?

Related terms

Payback Period: The time it takes for an investment to generate an amount of cash inflow equal to the initial cost of the investment.

Net Present Value (NPV): The difference between the present value of cash inflows and outflows over a period of time.

Internal Rate of Return (IRR): The discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.