What Is Net Cash?

Net cash flow is an indicator in the cash flow statement. It refers to the balance (net income or net expenditure) of inflows (income) minus outflows (expenses) of cash and cash equivalents within a certain period of time. Increases or net decreases in cash and cash equivalents.

Net cash flow

Two points should be noted here: First, the net cash flow is the same

By business

When determining the net cash flow, it should be determined in three categories:

The net cash flow reflects the results of the company's cash inflows and outflows during a certain period of time. In terms of amount, it is based on the realization of payment

Net cash flow calculation is the basis of present value calculation.

Both net profit and net cash flow are financial indicators that reflect the profitability and profitability of the company. The expected value of the net profit and the net cash flow can be measured using the income method of asset assessment. This is the common feature of the three. For the same enterprise or the same asset, these three indicators not only The values are different, and there are major differences in their financial meaning, caliber of calculation and formula.

Net profit is a static indicator and net cash flow is a dynamic indicator.

The basis of the definition of the net profit indicator is accrual basis, and the basis of the definition of the net cash flow indicator is the realization of payment.

Net profit does not include depreciation fees and interest expenses on loans, while investment-type net cash flows include depreciation expenses and interest expenses. Net cash flow from operations includes depreciation and excludes interest expenses.

The three indicators are both significantly different and inherently deterministic:

Total profit-income tax = net profit = operating net cash flow-depreciation + additional investment

The assessment community agreed that net cash flow should be promoted as the expected return. Because it is based on the principle of realizing village income, it eliminates the interference of people's subjective determination of fixed asset depreciation fees. At the same time, it takes into account not only the amount of cash flows but also the time of income and the time value of money. . Therefore, the net cash flow can more objectively reflect the net income of the enterprise or technology assets than the net profit. The valuation community in western developed countries usually uses the net cash flow as the expected return, such as the well-known American valuation company and American Andersen Financial Accounting Company. Although the domestic evaluation community also has such a consensus, due to various conditions, it is relatively rare to do so in evaluation practice.

Generally speaking, when the remaining life of technology assets is longer (more than 5 years), the net cash flow should be used as the expected income. When the remaining life is short (less than 3 years), the difference between the two indicators of net cash flow and net profit is not large, and both can be used as the expected income.

When the purpose of the evaluation is to invest in technology assets, when setting up a Chinese-foreign joint venture or cooperative enterprise, the net cash flow or net profit should be used as the expected income. Doing so is in line with international practice, and makes it easier for partners to understand the evaluation report and evaluation results, which is conducive to the final conclusion of the joint venture and cooperation agreement.

For non-foreign-related assets business, net profit can be used as the expected income amount in the assessment. This is the current practice in the domestic assessment community. The disadvantage is that sometimes it is difficult to calculate and it is difficult to find the return on assets that can be used directly as the discount rate.