Cash Value Added - CVA

Cash Value Added - CVA

The difference between the operating cash flow that a company demands and the operating cash flow it generates. Operating cash flow demanded is the cash the company requires to meet its business costs within a given period. Operating cash flow generated is all of the cash that a business generates through sales and investments without any reductions for non-cash expenses such as depreciation, amortization, deferred interest expenses and so on.

Notes:

Businesses must cover their operating costs - otherwise they operate at a deficit or become insolvent. Therefore, the cash value that a business can add to its bottom line is a very important measure of the business's financial solvency and success. A business that adds no cash to its operation on an ongoing basis is suffering. At the same time, however, when a business's CVA is regularly very high, it may have to invest more to continue to grow.

See also: Cash, Cash Conversion Cycle, Cash Flow, Economic Value Added, Non-Cash Charge, Revenue, Value Added

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Cash Value Added - CVA

A measure of the amount of cash generated by a company through its operations. It is computed by subtracting the 'operating cash flow demand' from the 'operating cash flow' from the cash flow statement.

Notes:

Cash value added is similar to economic value added but takes into consideration only cash generation as a opposed to economic wealth generation. This measure helps give investors an idea of the ability of a company to generate cash from one period to another. Generally speaking, the higher the CVA the better it is for the company and for investors.

See also: Cash, Cash Flow, Economic Value Added - EVA, Market Value Added - MVA, Operating Cash Flow Demand - OCFD, Operating Cash Flow - OCF