Define cash flow and explain procedures for drawing cash flow diagram.

Cash Flow is the statement which shows the inflows and outflows of cash and cash equivalents during the life of a project i.e, actual rupees coming into a firm or actual rupees going out from firm in different time periods. It is the basis for the evaluation of different alternatives.

The graphical representation of the cash flows streams i.e, both cash outflows and cash inflows with respect to a time scale is known as Cash flow diagram. It should show the following three things:

• A time interval divided into an appropriate number of equal periods.
• All cash out flows in each periods.
• All cash inflows for each period.

Unless otherwise specified, all such cash flows are considered to occur at the end of their respective periods.

Various steps involved in drawing a cash flow diagram are:

• In a cash flow diagram, the end of period `t` is the same as the beginning of period `t+1`.
• Beginning of period c....

Cash Flow is the statement which shows the inflows and outflows of cash and cash equivalents during the life of a project i.e, actual rupees coming into a firm or actual rupees going out from firm in different time periods. It is the basis for the evaluation of different alternatives.

The graphical representation of the cash flows streams i.e, both cash outflows and cash inflows with respect to a time scale is known as Cash flow diagram. It should show the following three things:

• A time interval divided into an appropriate number of equal periods.
• All cash out flows in each periods.
• All cash inflows for each period.

Unless otherwise specified, all such cash flows are considered to occur at the end of their respective periods.

Various steps involved in drawing a cash flow diagram are:

• In a cash flow diagram, the end of period `t` is the same as the beginning of period `t+1`.
• Beginning of period cash flows are rent, lease and insurance payments.
• End of period cash flows are O & M, salvages, revenues, overhauls.
• The choice of time zero is arbitrary. It can be when a project is analyzed, when funding is approved, or when construction begins.
• One persons cash outflow (represented as negative value) is another persons inflow (represented as a positive value).
• It is better to show two or more cash flows occurring in the same year individually so that there is a clear connection from problem statement to each cash flow in the diagram.
• Arrow lengths are approximately proportional to the magnitude of cash flow.