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Unconventional Cash Flow

What is an 'Unconventional Cash Flow'

A series of inward and outward cash flows over time in which there is more than one change in the cash flow direction. This contrasts with a conventional cash flow, where there is only one change in cash flow direction. In terms of mathematical notation - where the - sign represents an outflow and + denotes an inflow - an unconventional cash flow would appear as -, +, +, +, -, + or alternatively +, -, -, +, -.


The term is particularly used in discounted cash flow (DCF) analysis. An unconventional cash flow is more difficult to handle in DCF analysis than conventional cash flow since it may have multiple internal rates of return (IRR), depending on the number of changes in cash flow direction.

Explaining 'Unconventional Cash Flow'

In real-life situations, examples of unconventional cash flows are abundant, especially in large projects where periodic maintenance may involve huge outlays of capital. For example, a large thermal power generation project where cash flows are being projected over a 25-year period may have cash outflows for the first three years during the construction phase, inflows from years four to 15, an outflow in year 16 for scheduled maintenance, followed by inflows until year 25.

Unconventional Cash Flow FAQ

What is a normal cash flow?

Normal cash flow comprises of initial investment outlay with net positive cash flow all through the time of the project. It is also called conventional cash flow stream.

What are unconventional cash flows?

An unconventional cash flow comprises of inward and outward cash flows over time in which the direction of the cash flow changes frequently, unlike conventional cash flow, where a change in direction of the cash flow happens only once.

What is the direction that cash flows in a company?

Conventional cash flow shows a single cash flow direction of a company. Organizational structures. Normally, cash outflows happens just once which is at the start of a project. All cash flows are inflows onwards. The outflow at the start is to fund the project.

What is the difference between projects with normal and non normal cash flows?

What is the difference between normal and non-normal cash flow streams? Normal cash flow stream – Several positive cash inflows follow Cost (negative CF). ... Non-normal cash flow stream – Frequent changes of signs. Most common: Cost (negative CF), then string of positive CFs, then cost to close project.

When a project has a positive net present value it has a profitability index?

Generally, a profitability index more than 1 represents a positive NPV. A profitability index less than 1 represents a negative NPV. For example, a project that costs $1 million with a present value of future cash flows of $1.2 million has a PI of 1.2.

What is considered a good cash flow?

Greater than 1.0 – is preferred by investors, creditors, and analysts, because it implies a company can cover its liabilities for now and still have spill over. Companies with a high or uptrending operating cash flow are doing well financially.

Further Reading


Economic evaluation and decision method of oilfield development adjusting project
en.cnki.com.cn [PDF]
… present value being more than zero may be the basic standard of the project feasibility.The unconventional cash flow distribution pattern … flow increment less than zero.For ensuring the long effects of project benefits,the accumulation cash increment flow being more …

The impact of unconventional monetary policy on firm financing constraints: Evidence from the maturity extension programThe impact of unconventional monetary policy on firm financing constraints: Evidence from the maturity extension program
www.sciencedirect.com [PDF]
… present value being more than zero may be the basic standard of the project feasibility.The unconventional cash flow distribution pattern … flow increment less than zero.For ensuring the long effects of project benefits,the accumulation cash increment flow being more …

Unconventional Monetary Policy and Household Debt: the Role of Cash-Flow EffectsUnconventional Monetary Policy and Household Debt: the Role of Cash-Flow Effects
www.sciencedirect.com [PDF]
… present value being more than zero may be the basic standard of the project feasibility.The unconventional cash flow distribution pattern … flow increment less than zero.For ensuring the long effects of project benefits,the accumulation cash increment flow being more …

Unconventional monetary policies: a re-appraisalUnconventional monetary policies: a re-appraisal
www.elgaronline.com [PDF]
… present value being more than zero may be the basic standard of the project feasibility.The unconventional cash flow distribution pattern … flow increment less than zero.For ensuring the long effects of project benefits,the accumulation cash increment flow being more …

A model of unconventional monetary policyA model of unconventional monetary policy
www.sciencedirect.com [PDF]
… present value being more than zero may be the basic standard of the project feasibility.The unconventional cash flow distribution pattern … flow increment less than zero.For ensuring the long effects of project benefits,the accumulation cash increment flow being more …

ECB unconventional monetary policy: Market impact and international spilloversECB unconventional monetary policy: Market impact and international spillovers
link.springer.com [PDF]
… present value being more than zero may be the basic standard of the project feasibility.The unconventional cash flow distribution pattern … flow increment less than zero.For ensuring the long effects of project benefits,the accumulation cash increment flow being more …

Can technology R&D close the unconventional gas performance gap?Can technology R&D close the unconventional gas performance gap?
www.earthdoc.org [PDF]
… present value being more than zero may be the basic standard of the project feasibility.The unconventional cash flow distribution pattern … flow increment less than zero.For ensuring the long effects of project benefits,the accumulation cash increment flow being more …

Unconventional wisdom on PSI, the appropriate discount rate for the tax shieldUnconventional wisdom on PSI, the appropriate discount rate for the tax shield
papers.ssrn.com [PDF]
… present value being more than zero may be the basic standard of the project feasibility.The unconventional cash flow distribution pattern … flow increment less than zero.For ensuring the long effects of project benefits,the accumulation cash increment flow being more …

The impact of unconventional monetary policy on the Italian economy during the sovereign debt crisisThe impact of unconventional monetary policy on the Italian economy during the sovereign debt crisis
papers.ssrn.com [PDF]
… present value being more than zero may be the basic standard of the project feasibility.The unconventional cash flow distribution pattern … flow increment less than zero.For ensuring the long effects of project benefits,the accumulation cash increment flow being more …



FAQ


What is a normal cash flow?

Normal cash flow comprises of initial investment outlay with net positive cash flow all through the time of the project. It is also called conventional cash flow stream.

What are unconventional cash flows?

An unconventional cash flow comprises of inward and outward cash flows over time in which the direction of the cash flow changes frequently, unlike conventional cash flow, where a change in direction of the cash flow happens only once.

What is the direction that cash flows in a company?

Conventional cash flow shows a single cash flow direction of a company. Organizational structures. Normally, cash outflows happens just once which is at the start of a project. All cash flows are inflows onwards. The outflow at the start is to fund the project.

What is the difference between projects with normal and non normal cash flows?

What is the difference between normal and non-normal cash flow streams? Normal cash flow stream – Several positive cash inflows follow Cost (negative CF). ... Non-normal cash flow stream – Frequent changes of signs. Most common: Cost (negative CF), then string of positive CFs, then cost to close project.

When a project has a positive net present value it has a profitability index?

Generally, a profitability index more than 1 represents a positive NPV. A profitability index less than 1 represents a negative NPV. For example, a project that costs $1 million with a present value of future cash flows of $1.2 million has a PI of 1.2.

What is considered a good cash flow?

Greater than 1.0 – is preferred by investors, creditors, and analysts, because it implies a company can cover its liabilities for now and still have spill over. Companies with a high or uptrending operating cash flow are doing well financially.

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