The process of allocating the costs of tangible assets over their useful lives is called depreciation. This is not a cash expense. However, it can reduce the company’s profits and taxes. Because it impacts the company’s financial statements as well as its tax liability, depreciation can be a key concept in business decision making.
Cash flow describes the company’s cash outflow and inflow. Cash flow is vital to make sure that the company can meet its financial obligations. It also allows for growth potential. Negative cash flow is when a company’s cash flows are negative.
The cash generated by a company’s primary business activities is called operating cash flow. This is determined by subtracting revenues from operating expenses. It is crucial to determine a company’s ability to make cash from core businesses.
Net present value or NPV is a measurement of the project or investment’s worth. This is calculated by subtraction of the amount invested and future cash flows. If a project is predicted to produce more cashflow than it initially invested, a positive net present value (NPV) indicates this. Conversely, if a project generates less cash flow than an initial investment then a negative NPPV will indicate that the opposite. This is an important indicator for making business decisions as it provides an indication of the value of an investment.