The first basic concept in managing cash flow is about the difference in cash value at different times. It is caused mainly by either risk such as inflation or default risk, interest income, or both. Therefore, to be able to effectively prepare the money, we need to understand the time value of money concept.


FVN = PV(1 + r)N


PV = FVN(1 + r)-N 


PV = Present cash value
FVN = Future cash value at period N
r = Compounding interest and/or inflation rate per period
N = The amount of period suited with r (if r is % p.a.*, then N must equal to years)
*per annum/yearly


1. Detailed time value of money formulas (annuity, perpetuity, growth rate, etc.) can be accessed here...
2. We'd always reccommend using a financial calculators or softwares (such as Ms Excel) in order to do these equations and here's how to do it...


By knowing this, we can project how much our cash needs in the future based on our current needs when there are no fundamental changes. This will help us a lot in determining accurately whether we need additional cash or otherwise having too much cash on the bank. Excessive cash may incur an opportunity cost, thus, better cash flow management can surely be beneficial to businesses. Use this method to calculate projections for periods longer than a year.




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