3. Cash Flow: Easy Come, Easy Go

Chapter 1 introduced the two major financial decisions that go into helping the firm grow and increase shareholder wealth. In Chap.​ 2, we learned how to use financial statement analysis to aid in making financial decisions. A primary goal of that process was to identify areas of opportunity, where a potential project would be most beneficial. Once that identification is complete, the next step involves closely examining the expected cash flows of those potential projects. This is the first step in capital budgeting, or the process of choosing projects in which we will invest company funds. The discussion will begin with an overview of cash flows in general, before moving into calculating them for the firm at large. Finally, we will address the process of calculating cash flows for a single project.