Change In Cash and Cash Equivalents (cash flow) vs Cash And Cash Equivalents (balance sheet)
"tl;dr It's a difference between cash and cash equivalents and net cash and cash equivalents.  Download the 2016 annual report from http://www.diageo.com/en-us/investor/Pages/financialreports.aspx On page 99 is the Consolidated Statement of Cash Flows at the bottom is a section ""Net cash and cash equivalents consist of:""   Net cash and cash equivalents consist of: 2016-06-30   2015-06-30 Cash and cash equivalents                      1,089          472 Bank overdrafts                                 (280)         (90)                                                  809          382  The difference between net cash of 809 million and 382 million is 427 million, matching the ""Change in Cash and Cash Equivalents"" from Yahoo. I do not know that bank overdrafts mean in this situation, but appears to cause cash to show up on balance sheet without being reflected in the net cash portions of the cash flow statement. And the numbers seem like balances, not year of year changes like the rest of the statement of cash flows.  2015 net CCE              382 2016 cash flow          + 427                          ---- 2016 net CCE              809 Cash from overdrafts    + 280                           ---- 2015 balance sheet cash 1,089"
I think I understand what I am doing wrong.  To provide some clarity, I am trying to determine what the value of a project is to a firm.  To do this I am taking FCF, not including interest or principal payments, and discounting back to get an NPV enterprise value.  I then back off net debt to get to equity value.  I believe what I am doing wrong is that I show that initial $50M as a cash outflow in period 0 and then back it off again when I go from enterprise value to equity value.  Does this make any sense?  Thanks for your help. Not quite the usual DCF or valuation question, but more FP&amp;A: any ideas how to bridge cash forecast to financial forecast? To clarify, financial forecast is mostly done on an accrual basis whereas cash is outflows and inflows. Trying to figure out how to have better visibility into cash discrepancies The three places you want to focus on are the income statement, the balance sheet, and cash flow statement. The standard measure for multiple of income is the P/E or price earnings ratio  For the balance sheet, the debt to equity or debt to capital (debt+equity) ratio. For cash generation, price to cash flow, or price to free cash flow. (The lower the better, all other things being equal, for all three ratios.) Both are correct depending on what you are really trying to evaluate. If you only want to understand how that particular investment you were taking money in and out of did by itself than you would ignore the cash.  You might use this if you were thinking of replacing that particular investment with another but keeping the in/out strategy. If you want to understand how the whole investment strategy worked (both the in/out motion and the choice of investment) than you would definitely want to include the cash component as that is necessary for the strategy and would be your final return if you implemented that strategy. As a side note, neither IRR or CAGR are not great ways to judge investment strategies as they have some odd timing issues and they don't take into account risk. "The quickest way to approach this question is to first understand that it compares flows vs. levels. Market size is usually stated as an annual or other period figure, e.g. ""The market size of refrigerators will be $10mn in 2019.""  This is a flow figure. Market capitalization is a level figure at any given point in time, e.g. ""The market cap of the company was $20 million at the end of its last fiscal quarter."" Confusion sometimes occurs when levels and flows are used loosely for comparisons.  It is common for media to make statements such as ""Joe Billionaire is worth more than the GDP of Roselandia.""  That is comparing a current level (net worth) with an annual flow (GDP). With this in mind, there are a variety of conditions where a company's equity market value will exceed its market size.  The most extreme example is an innovating, development-stage enterprise, say, a biotech company, developing a new market for a new product; the current market size may be nil while the enterprise is worth something greater. The primary reason however for situations where a company's equity market cap is greater than its market size is usually that the financial market expects the enterprise (and oftentimes its market, though this isn't necessary) to grow substantially over time and hence the discounted value of the company may be greater than the current or near future market size. A final example:  US annual GDP (which comprises of much more than corporate incomes and profits) for 2014 was about $17.4tn while the nation's total equity market value in 2014 was $25.1tn, both according to the World Bank.  That latter figure also doesn't include the trillions of corporate debts these companies have issued so the total market cap of US, Inc. is substantially greater than $25.1tn." The short answer is that you would want to use the net inflow or net outflow, aka profit or loss.   In my experience, you've got a couple different uses for IRR and that may be driving the confusion.  Pretty much the same formula, but just coming at it from different angles.   Thinking about a stock or mutual fund investment, you could project a scenario with an up-front investment (net outflow) in the first period and then positive returns (dividends, then final sale proceeds, each a net inflow) in subsequent periods.  This is a model that more closely follows some of the logic you laid out. Thinking about a business project or investment, you tend to see more complicated and less smooth cashflows.  For example, you may have a large up-front capital expenditure in the first period, then have net profit (revenue less ongoing maintenance expense), then another large capital outlay, and so on.   In both cases you would want to base your analysis on the net inflow or net outflow in each period.  It just depends on the complexity of the cashflows trend as to whether you see a straightforward example (initial payment, then ongoing net inflows), or a less straightforward example with both inflows and outflows.   One other thing to note - you would only want to include those costs that are applicable to the project.  So you would not want to include the cost of overhead that would exist even if you did not undertake the project. Your account entries are generally correct, but do note that the last transaction is a mixture of the balance sheet and income statement.  If Quickbooks doesn't do this automatically then the expense must be manually removed from the balance sheet. The expense should be recognized on the balance sheet and income statement when it accrues, and it accrues when the prepaid rent is extinguished when consumed by the landlord, so that is when the second entry in your question should be booked. The cash flow statement will reflect all of these cash transactions immediately. Accounting profits and cash flow are two different things. Say for example that I sell you a widget and you pay me today. I deliver the widget to you in February. In accounting terms, the revenue isn't recorded until Feb even though I have the cash in October. There's also a lot of non-cash items that affect accounting income (depreciation, amortization, etc.) In a small, growing company, cash is the most important thing. Many startups know what their burn rate (how much net cash their out flowing each month) and runway (how many months they can survive with their given burn rate until they are literally out of cash) more intimately than their accounting profit.   As for what qualifies as a startup, that's something that is debated in the startup world fairly often. I think the best take is from Paul Graham. http://paulgraham.com/growth.html "1. That's a really complicated answer. In short, I think we need to make accounting rules much simpler (I say this as an accountant) in combination with financial education in K-12 school. Most adults in this country can't tell you which is a better investment: something that returns 5% monthly or something that returns 10% annually. They don't know that accounting income and cash flow are different things and what they mean. Accounting rules are sometimes ridiculous. Look at the balance sheet of even a moderate size company. What's in ""Other Comprehensive Income"" and why is that different than net income? Why is it that American Airlines, one of the largest airlines in the world doesn't have a single airplane on their balance sheet?  2. That might be a step in the right direction, but I'm just not sure how effective something like that would be. More comprehensive might be better, but then there's going to be less people that want to take the time." The most obvious example would be a situation where a Company is growth constrained, but cash flow positive. It may have enough cash flow to service $10 million of debt, but it needs to build a new facility that will cost $20 million. There is the option to raise debt and equity or just raise equity and move quicker to getting that facility up and running.   There are also situations where debt is used to replace equity (i.e. dividend recapitalization or leveraged share redemption). "Increase in A/R in balance sheet includes the A/R of acquired businesses. Change in A/R in cash flow statement might say ""excluding effects of business acquisitions""." "I have some money invested on Merrill Edge. 2 days ago I purchased some mutual funds with most of the rest of my money in my account. I logged in today to see how it did, and noticed that there are 3 sections: Priced Investments, Cash &amp; Money Accounts, and Pending Activity. In the Cash &amp; Money section, there shows a negative balance of Cash (let's say -$1,000) and a positive ""Money Account Value"" (let's say +$1,100).  The ""Money Account"" appears to be made up of $1 shares of something called ""ML Direct Deposit Program"". However, even though the mutual fund purchase was made 2 days ago, and the shares of the mutual funds are officially in my account, I'm still showing all of my ""Money Account"" shares ($1000). The balance sheet effectively makes it look like I somehow needed to have ""sold"" back my money account shares, converted them to cash, and then bought the funds. I'm hoping that isn't the case, and for some reason, there is a multiday lag between me buying stock and money getting deducted from my ""Money Account"". Hope that all makes sense.  TLDR: what's the diff between a Cash account and Money Account that's filled with shares of "" ML Direct Deposit Program""?  Edit: Today the cash and money account offset by equal values equal to one of my mutual fund purchases." You wouldn't know it's value (Enterprise Value) without knowing its cash balance.  The equation:   EV = Market Cap + Minority Interest + Preferred Stock + Debt - Cash  Enterprise Value is the value of the company to ALL shareholders (creditors, preferred stock holders, common stock holders).  So, taking on debt could either increase or decrease the EV depending on the cash balance of the company.  This will have no effect, directly, on the market cap. It will, however effect the present value of its future cash flows as the WACC will increase due to the new cost of debt (interest payments, higher risk of bankruptcy, less flexibility by management). Different stakeholders receive cash flows at different times. The easiest way for me to remember is if you're a debt holder vs equity owner on an income statement. Interest payments are made before net income, so debt holders are repaid before any residual cash flows go to equity owners. i cannot directly tell from the provided information if it is already included in Net A/R but if there is a balance sheet you can check yourself if the Total Cash Flow matches the difference between cash position year 0&amp;1 and see if it is net or still to be included.