Cashflow and profit

In this lesson

1. 0:00 Investment appraisal and cash flow fundamentals
2. 0:25 Why cash flow matters more than accounting profit
3. 1:33 Time differences between cash and profit recognition
4. 2:35 Non-cash items: depreciation and other adjustments
5. 3:23 Why investment appraisal focuses on cash flows
6. 5:02 Identifying relevant cash flows for decisions
7. 6:03 Three criteria for relevant cash flows
8. 7:31 Sunk costs and why to ignore them
9. 7:46 Understanding incremental cash flows
10. 9:38 Cash impact as the final relevance test
11. 10:23 Opportunity costs and avoidable costs
12. 12:45 Summary: classifying irrelevant and relevant costs

About this lesson

You'll discover how timing differences (like credit sales and purchases) and non-cash items (like depreciation) create gaps between the two, and understand why investors and lenders care far more about actual cash movements than reported profit. The video then equips you with the framework to identify relevant cash flows for investment decisions: they must be future, incremental, and have a real impact on cash. You'll work through practical examples—from opening new factories to launching products—and learn to spot irrelevant costs like sunk costs, committed costs, and notional charges that should be excluded from your analysis. By the end, you'll be confident recognising avoidable costs, opportunity costs, and differential costs, and applying the three-point checklist to determine which cash flows matter for decision-making. This is essential groundwork for mastering investment appraisal techniques across Performance Management and Advanced Performance Management papers.

Duration: 14m