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LSDefine
Simple English definitions for legal terms
incremental cash flow
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A quick definition of incremental cash flow:
Incremental cash flow refers to the additional amount of money a business earns as a result of a particular investment. It is the difference between the cash flow generated by the investment and the cash flow that would have been generated without the investment. In simpler terms, it is the extra money a business makes because of a specific decision they made. For example, if a company decides to invest in a new product line, the incremental cash flow would be the additional money earned from selling that product line, minus the costs associated with producing and selling it.
A more thorough explanation:
Incremental cash flow refers to the net increase in cash flow that can be attributed to a particular capital investment. It is the difference between the cash flow generated by the investment and the cash flow that would have been generated without the investment.
For example, if a company invests in a new production line that generates an additional $100,000 in cash flow per year, and the company would have generated $50,000 in cash flow without the investment, then the incremental cash flow is $50,000.
Incremental cash flow is an important concept in capital budgeting, as it helps companies determine whether a particular investment is worth pursuing. By comparing the incremental cash flow generated by an investment to its costs, companies can determine whether the investment will be profitable.