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When do you use a discounted cash flow and a future cash flow?
Wiki User
∙ 15y ago
You use it when you want a more accurate valuation of an asset or business. A Discounted Cash Flow analysis (DCF) is performed to project the present value of future cash flows. A single, current year of operations is studied to determine the net operating revenue (Income minus recurring expenses). That year is the extrapolated forward for a holding period (5 years, 10 years). Each of those years are added together and then "discounted" (the opposite of compounding) at an arbitrary rate factoring in the risks associated with collection of future cash flows (inflation, true cost of equity and debt, risk of interruption in cash flow, the unknown) That calculation provides the net present value of the cash flow. If the discount rate you used yields a value greater than the initial equity, the deal is positive. If the discount rate is recalculated upward so that the net present value and the initial equity are equalized, (no longer being greater but matched) the resulting recalculation number is your internal rate of return. (IRR)
Wiki User
∙ 15y ago
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What is the difference nominal cash flow and real cash flow?
Difference between real and nominal cash flow is that nominal cash flows uses the inflation information as well for calculation of nominal cash flow of future while real cash flow don't use that information for calculation.
Why is it inappropriate to use one yield in discounting all cash flows in a financial asset?
There are different cash flow patterns. Each cash flow should be discounted at a unique rate appropriate for the time period in which the cash flows will be received to get a more accurate bond price.
How would you value a water bottle company I would think that I would use a number of methods like the following to get an idea Discounted cash flow of the company trading multiple of comparable firms?
The most widely used stock valuation model is based on the sum of all future cash flows discounted to present value using an appropriate discount rate. The discounted cash flow method is based on the concept that stock investors ultimately expect to receive an acceptable return on their investment relative to competing investments. Valuations can also be based on investor perceptions of future value which may not necessarily yield the same result obtained by using the discounted cash flow method. Establishing the value of a company based on the value of comparable companies in the same industry is also a valid valuation method but care must be taken when comparing companies. For example, a company selling generic bottled water is a world apart from companies selling water from a unique source such as Fiji water.
Difference between cash budget and fund flow statement?
1. cash flow statement is a technique of past analysis where as cash budget is a technique of future financial forecasting.2. cash flow covers a period of 1 year. in cash budget it is broken into monthly weekly segments.3.cash flow does not emphasis on a particular source and use. cash budget emphasis on financial pattern to meet seasonal and temporary cash need.
What is the purpose of a cash flow analysis?
Cash flow can be:operational cash flow (the flow of cash for normal operation of the business)financing cash flow (the flow of cash for financial activities like loans, dividends, stocks, etc.)investment cash flow (the flow of cash for investments like plant & machinery, land, and other long term capital expenditures)
Cash flow management?
Cash flow management is the process businesses use to ensure they have control over their finances. The finance or accounting department is over cash flow management.
Why are Discounted cash flows the best basis for capital budgeting decision?
Discounted cash flows are the best basis for capital budgeting decision due to the singular fact that they recognise the time value of money. Capital budgeting decisions are long term investment that considers how much money invested now will yield an expected returns in the future and since money is time sensitive,the best way of capturing this is by using methods that recognises time lags,hence the use of discounted cash flows
What does one do to make a cash flow forecast?
Cash flow projection is the most powerful tool in cash management. It enables companies to see the cash flowing in and out of an organization. The direct method of cash flow forecasting is to use the direct cash receipts and disbursements method.
What are the alternative cash-flow measures used by the DCF model?
These models use three alternative cash-flow measures: dividends, accounting earnings, and free cash flows.
What is the difference between Cash Budget and Cash Flow Statement?
The cash flow statement looks at the past while the cash budget is for planning for the future. Cash Flow:1)Cash flow statements shows the cash inflow2)Preparation done of the past events3)Use as tool of analysis & determine likely flow of cash4)It starts with cash & cash equivalents & end with cash & cash equivalents.5)Basically, it prepared for financial accounting period6)The cash flow statement prepared as per IAS 077)It prepared for utility of external agenciesCash Budget:1)All expected cash receipts & estimates2)Preparation done on forthcoming events3)Surplus cash receipts planned for profitable investments4)It starts with cash on hand & bank & close with cash on hand & bank5)It may prepared for a month, quarter, half year or annual6)There is no specific format prescribed for preparation7)It is prepared as part of planning for the utility of internal management
what does a cash flow note look like?
cash flow note is a business term used for a working budget that tells you how much cash your business actually has.With the use of a Cash Flow, your business will have more money and a road map for the future.there are also such things as realastate cash flow notes and they do not help you get rich but they can sure make youalot of money.
What's about shoping in the future?
Shopping in the future will most likely not use cash in any way.
