4.5. Cash flow analysis

Why cash flow analysis is important

It is important to analyze a project's cash flow as available cash is used to service any debt obligations. The analysis is done through the development of a cash flow model. Once the financial model for a project is developed, the implications of alternative financial structures and effects of changes in other parameter values on cash flow can be analyzed. The next figure shows a typical cash flow situation.

Figure 10

Critical components of a cash flow model are:

  • Capital investment
  • Terminal cash flow
  • Discount rate
  • Assumptions on parameter values

Next, we will discuss these components in more detail.


Copyright © 2008 by Transport Policy and Development Section, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).