What is Retained Cash Flow - RCP
Retained cash flow (RCP) is a measure of the net change in cash and cash equivalent assets at the end of a financial period. It is the difference between the incoming and outgoing cash for the period. Retained cash flow includes the remaining cash after an entity uses cash for expenses and returning cash to capital suppliers, such as paying off debt obligations or paying dividends. It is typically used to reinvest in positive net present value (NPV) projects, thereby growing the business.
BREAKING DOWN Retained Cash Flow - RCP
Retained cash flow is a good indication of the cash available for reinvestment in future growth and innovation efforts. It is a useful metric when creating a budget, gauging financial success and forecasting future revenues and expenses. When a company doesn't have positive retained cash flow and wishes to finance positive NPV projects, an entity may need to go to the capital markets to raise additional funds. This is a more costly method, as retained cash is almost always the cheapest source of new money.