Initial Cash Flow

AAA

DEFINITION of 'Initial Cash Flow'

The amount of money paid out or received at the start of a project or investment. This is generally a negative amount because projects often require a large initial capital investment by a company that will generate positive cash flow over time.

INVESTOPEDIA EXPLAINS 'Initial Cash Flow'

During the capital budgeting process, the attractiveness of a project is evaluated based on the cash flows generated by the project over its life. Using discounted cash flow analysis, the project's future value of the cash flows over its life are brought back to the present value to determine whether it is worthwhile for the company to pursue the project. Because the initial outlay is made at the start of the project (time zero), it isn't discounted.

For example, an oil company evaluating the attractiveness of a new refinery may budget for an initial outlay of $100 million to get the project started. This is then evaluated along with the future cash flows the project will generate over its life.

RELATED TERMS
  1. Net Present Value - NPV

    The difference between the present value of cash inflows and ...
  2. Payback Period

    The length of time required to recover the cost of an investment. ...
  3. Discounted Cash Flow - DCF

    A valuation method used to estimate the attractiveness of an ...
  4. Cash Flow

    1. A revenue or expense stream that changes a cash account over ...
  5. Capital Budgeting

    The process in which a business determines whether projects such ...
  6. Cost Test

    A standard test applied to a process to determine if the net ...
RELATED FAQS
  1. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. How often should a small business owner go through a bank reconciliation process?

    Small business owners should go through the bank reconciliation process at least monthly, and many business consultants recommend ... Read Full Answer >>
  6. Why is a company's Cash Flow from Financing (CFF) important to both investors and ...

    A company's cash flow from financing activities (CFF) is important to investors and creditors because it depicts how much ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Discounted Cash Flow Analysis

    Find out how analysts determine the fair value of a company with this step-by-step tutorial and learn how to evaluate an investment's attractiveness for yourself.
  2. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.
  3. Home & Auto

    Are Home Inspections Worth It? - Price vs. Value

    If you’re wondering whether home inspection is worth the investment, the following information will help you decide.
  4. Economics

    Understanding the Top Line

    Top line refers to a company’s gross sales without any reductions for discounts or returns.
  5. Fundamental Analysis

    Understanding Activity Ratios

    Activity ratios measure how effectively a business uses its assets.
  6. Term

    How Equity Capital Markets Work

    An equity capital market is a market existing between companies and financial institutions that raises money for the companies.
  7. Budgeting

    How to Defray Long-Term Care Expenses

    Here's a handful of options on what you can do to defray long-term care expenses.
  8. Budgeting

    The True Cost of Home Caregiving

    Caring for eldery family in-home might be unavoidable, but most caregivers don't realize the true cost of doing so.
  9. Budgeting

    Is Level Money the Perfect Budgeting Tool?

    Here’s a detailed review of how Level Money works and whether it could be the perfect tool to help you budget.
  10. Fundamental Analysis

    Understanding Consolidated Financial Statements

    Consolidated financial statements are the combined financial statements of a parent company and its subsidiaries.

You May Also Like

Hot Definitions
  1. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  2. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  3. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  4. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  5. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  6. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!