Retained Cash Flow (RCP)

What Is Retained Cash Flow (RCP)?

Retained cash flow (RCP) is a measure of the net change in endlessly cash equivalent assets toward the finish of a financial period. It is the difference between the approaching and active cash for the period. Retained cash flow incorporates the leftover cash after an entity involves cash for expenses and returning cash to capital providers, like paying off debt obligations or paying dividends. RCP is commonly used to reinvest in positive net present value (NPV) projects, subsequently developing the business.

Figuring out Retained Cash Flow (RCP)

Retained cash flow is a decent indication of the cash accessible for reinvestment in future growth and innovation efforts. It is a helpful metric while making a budget, measuring financial achievement, and forecasting future incomes and expenses.

At the point when a company doesn't have positive RCP and wishes to finance positive NPV projects, an entity might have to go to the capital markets to raise extra funds. This is a more exorbitant method, as retained cash is quite often the cheapest source of new money.

Special Considerations

The cash that a company has is important. Retained cash flow is the net increase or decline in cash a company has starting with one period then onto the next. To compute retained cash flow you really want the cash flow statement from the two latest periods.

Basically, retained cash flow is the cash given by operating activities, excluding changes in different accounts — including accounts receivable, inventory, and accounts payable, minus cash dividends. RCP is generally viewed as the difference between the operating cash flow less dividends for two periods.

For instance, say Company ABC created $200 million in operating cash flow for the fourth quarter of 2020 and paid out $50 million in dividends. Then, in the primary quarter of 2021, the company created $125 million in operating cash flow and paid $50 million in dividends. In this manner, its RCP is $75 million (($200 million - $50 million) - ($125 million - $50 million)).

Retained Cash Flow versus Retained Earnings

Retained earnings don't have anything to do with the cash the company has available. All things considered, it's a running total of the multitude of company's profits and losses since its most memorable day in business. Profits created however not paid out as dividends are viewed as retained earnings.

For instance, assuming a company has $10 million in retained earnings, that doesn't liken to $10 million in cash. Say a company makes $100 million in profit and delivers $75 million in dividends, its retained earnings would be $25 million. Retained earnings are past profits, which are generally reinvested back into the company.

Features

• Retained cash flow (RCP) is the net change in cash for the finish of a period, deducting such outflows as cash expenses and dividend payments.
• RCP is the cash given by operating activities, excluding changes in different accounts.
• RCP is quite often the cheapest form of new money, compared to different methods —, for example, collecting extra money through the capital markets.
• Not at all like RCP, retained earnings isn't a cash flow measure, however rather is a calculation of profits "retained" inside the company after dividends are paid.
• RCP is a measure of the cash accessible for reinvestment in future growth, like positive net present value (NPV) projects.