Real cash flow

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Real cash flow

Income expressed in current purchasing power terms.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Real Cash Flow

A company's cash flow for a certain period of time adjusted for inflation. For example, if a company wishes to compare its annual cash flows between 1995 and 2005, it may adjust all figures and reflect them in 2005 dollars. The real cash flow gives a company an idea of how it is really performing from one period of time to the next.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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They will continue to generate strong real cash flows.
"Energy efficiency will help minimize operation and maintenance costs, improve productivity and generate real cash flows. It will also contribute to the mitigation of climate change.
Hideki Mori, World Bank Country Manager for Uzbekistan said that energy efficiency will help minimize operation and maintenance costs, improve productivity and generate real cash flows. It will also contribute to the mitigation of climate change.
In earlier research, Ingersoll and Ross (1992) had analyzed the value of waiting to invest in the presence of nonstochastic (constant) real cash flows and stochastic (randomly varying) real interest rates.
As such, they are best suited to corporate situations where stable real cash flows are highly valued and yield is relatively less important, since the portfolio is almost certain to pay a premium to acquire the inflation protection.
To convert future cash flows to real cash flows they must be deflated by the general rate of inflation.
Thus real cash flows should be discounted at a real discount rate or nominal cash flows should be discounted at a nominal rate.
This would understate the reported NPV Table IV also shows that a further ten respondents (5 per cent) discounted real cash flows at a nominal discount rate (also understating NPV calculations) and 22 respondents (11 per cent) discounted nominal cash flows at a real discount rate (thus overstating NPVs).
In these circumstances real cash flows are derived by adjusting current cash flows by the specific rate of inflation and then deflating them using the general inflation rate.