Question

What is project cash flow? Discuss in details its financial importance and value

Answer 1

Project cash flow is a statment used to evaluate cash flow for a fixed term of a project. It helps in understanding the inflow and outflow of cash that will be created by a project

Project cash flow= Cash Inflow- Cash Outflow.

When a company invests in a new project, it analysis the cost and expected revenues from the project to decide whether the investment is worth or not. Company examines its relevent cash flows like oppotunity cost, changes in working capital, cash inflows/ outflows to take the decision to proceed with the project or not. Forecasting the amount and timing of project expenses and revenues is the critical element of project cash flow planning.

Creating a project cash flow statement is important as it:

• Helps in obtaining certainity and understanding future cash flows.
• Reduces the risks of uncertanities.
• Assists in prediction of cash shortages and surplus.
• Helps in taking funding decisions.