Q:

What is incremental cash flow?

A:

Quick Answer

Incremental cash flow is the difference between the current cash flow and the potential cash flow of a company, should it make a capital investment. The concept is also measured by an equation which states that operating cash flow equals the excess of cash inflow over cash outflow.

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Full Answer

Businesses use incremental cash flow analysis in their capital budgeting and investment decisions to evaluate whether a potential initiative will be profitable or not. A negative incremental cash flow suggests that a potential venture is likely not worth the investment, while a positive incremental cash flow reflects the project may yield benefits for an enterprise.

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