QS Study

Basic Principles for measuring Project Cash Flows

Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, limited period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company’s value and situation Cash flow can be used, for example, for calculating parameters: it discloses cash movements over the period. Cash inflows usually arise from one of three activities – financing, operations or investing – although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance. When beginning the capital-budgeting analysis, it is important to determine a project’s cash flows. The cash flows of a project must be measured in incremental terms.

The basic principles of measuring project cash flasks are –

  1. A principle of incremental cash flow,
  2. A principle  of the long-term fund,
  3. A principle of financing cost exclusion,
  4. A principle of post-tax.