Glossary of Cash Flow Analysis Terms

This glossary of financial terms related to cash flow analysis is offered to assist you with understanding the results calculated by Discounted Cash Flow Analysis Calculator.  While you may find a more expansive financial glossary on the internet, the financial terminology on this page focuses on cash flow analysis.

Average Cash Flow : the average cash flow is determined by summing the cash flows in a series and dividing the sum by the total number of cash flows.

Benefit/Cost Ratio : this is the Present Worth Revenue (PWR) divided by Present Worth Cost (PWC)

Cash Flow Range : the cash flow range is the difference between the smallest and largest cash flows in a series.

Cash Flow Series : a series of positive and negative values representing the cash expenditures and gains over a period of time. The initial cash flow in a series is usually negative for an investment due to the cost of the investment. Positive cash flows are those that return value during a period of the series. Negative cash flows are those that cost more than they return in a series.

As a simple example, the purchase of a duplex as a rental investment may occur in this fashion:  Duplex purchase price = $150,000; -$8,000 to fix it up during first year; Rental income of $4,000 during first year; two years rental income of $14,400; Sale of duplex for $160,000 in third year and $6,000 of rental income.

cf0 = ($150,000)
cf1 = ($4,000) [($8,000) repairs + $4,000 income]
cf2 = $14,400
cf3 = $14,400
cf4 = $166,000 [$6,000 income + $160,000 sale proceeds]

DCF Calculator : a DCF Calculator is software designed to make DCF calculations easy by allowing the user to enter a cash flow series and then automatically performing the complex mathematics to provide results for different DCF values. A perfect example of a DCF Calculator for Windows is Discounted Cash Flow Analysis Calculator.

Discount Rates : the rate of return used to calculate the present value of the series of cash flows. For example, if you expect an 8% return on your investment's cash flows, your Discount Rate is 8%. Discounted Cash Flow Analysis Calculator allows you to compare the results of up to 5 different discount rates at once. This allows you to immediately see the difference in results of a range of possible investment returns.

Initial Investment : usually a negative cash flow because money is being spent to acquire the investment.

Internal Rate of Return : the discount (interest) rate at which the net present value of the cash flows = 0. Because of the calculation, if there is more than one sign change in the cash flow series, there's a potential for more than one "mathematically correct" answer to the IRR formula (though, only one is really right).

Largest Cash Flow : this is a largest positive cash flow in a cash flow series

MIRR : (Modified Internal Rate of Return) : similar to the IRR, but different in that it accommodates more than one sign change in the cash flow series. MIRR is an alternative to IRR when your cash flow series has multiple sign changes.

NFV : (Net Future Value) : the NFV of a series of cash flows is calculated by finding the future value of the net present worth.

NPV : (Net Present Value) : NPV is the present value of an investment's expected future cash flows minus the costs.

Number of Cash Flows : this is the number of cash flows in a series (including the initial cash flow)

NUS : (Net Uniform Series) : the NUS is the dollar amount of regular, equal cash flows that has a present value equal to the net present value.

Present Value Ratio : this is the Net Present Value (NPV) divided by the Present Worth Cost

Present Worth Cost : the sum of all discounted costs or negative cash flows in a series.

Present Worth Revenue : the sum of all discounted revenues or positive cash flows in a cash flow series.

Smallest Cash Flow : the smallest cash flow in a series (usually, but not necessarily, the initial investment)

Undiscounted Payback Period : the period of time in periods required to payback the initial investment without regard to discounting

Undiscounted Sum of Cash Flows : the sum of all cash flows in a cash flow series without regard to discounting