Cash Flow Calculation

The calculation of cash flow was presented earlier, in Chapter 3. Cash flow is the real movement of money to and from the proj­ect. The cash flow is positive if the company receives money. It is negative if the company is paying money out. Net cash flow is the difference between these two amounts.

From a contractors standpoint, positive cash flow is the money received in invoices or monthly payments. Negative cash flow is the money paid out for wages and salaries, equipment, subcontrac­tors, and other items during the construction. In any project the contractor at some period will have negative cash flow. Money must therefore be available as an investment in the project. In the case of increasing the net cash flow, this contract is self-financed.

In general, construction companies arrange as part of their con­tract with a project that there is a financial reserve to draw upon in case a project is temporarily lacking funds.