the annual net operating cash flow refers to the difference between the inflow and outflow of cash and its equivalents generated by the business activities of an enterprise in a certain period. This indicator is to examine the actual solvency of an enterprise from the dynamic perspective of cash inflow and outflow. The total cash debt ratio = operating cash flow/total liabilities < P > Dynamic indicator is a variety of indicators calculated on the basis of unified conversion of cash flow formed by investment projects according to the time value of money, including investment payback period (dynamic), net present value, net present value rate, internal rate of return, external rate of return, etc.

[ Edit] Calculation and analysis of dynamic indicators

1. Dynamic payback period

The difference between dynamic payback period and static payback period is that it is based on discounted cash flow and discounted according to the minimum rate of return I required by the enterprise.

calculAtion formula:

where I represents the discount rate, A represents the original investment amount, at represents the cash flow in t years, and n represents the dynamic investment payback period (year).

if the annual net cash flow is equal and in the form of annuity, the calculation formula of the dynamic payback period is as follows:

dynamic payback period

2. net present value

net present value (NPV) is the sum of the net cash flow of each year converted to the value of years according to the discount rate required by the enterprise.

Calculation formula:

If the net present value is positive, it means that the achievable rate of return of this scheme is greater than the discount rate used; If it is negative, it means that the achievable rate of return of this scheme is less than the discount rate used.

3. Net cash rate

Net cash rate (NPVR) refers to the ratio of the present value of future cash inflow of an investment scheme to the original investment amount, which makes the scheme have a comparable basis by explaining the present value of future cash inflow per yuan of investment.

calculation formula:

net present value has the following relationship:

net present value > net present value > 1

net present value = net present value = 1

net present value < net present value < 1

4. Internal rate of return

Internal rate of return (IRR).

calculation formula:

, where r is the internal rate of return

(1) When the cash inflows in each period are not equal, the determination of r:

First, estimate a discount rate to uniformly convert the cash inflows in future years into "present value", and then add it up, and then compare it with the original investment amount. If the difference is positive, it shows the internal rate of return that the investment scheme can achieve. If the difference is negative, it means that the internal rate of return that the investment scheme can achieve is smaller than the discount rate used. After successive calculations, two adjacent discount rates from positive to negative are obtained.

Secondly, according to the two adjacent discount rates from positive to negative, the internal rate of return of the scheme is calculated by "interpolation method".

calculation formula:

where r1 represents the lower discount rate for trial calculation and r2 represents the higher discount rate for trial calculation; |NPV1| represents the absolute value of the positive present value calculated at a lower discount rate; |NPV2| represents the absolute value of the negative present value calculated at a higher discount rate.

(2) When the cash inflow in each period is equal and realized as an annuity, the determination of R:

First, the present value coefficient is calculated by dividing the original investment amount by the annuity amount.

calculation formula:

present value coefficient = original investment amount/annuity amount

Secondly, find out the discount rate adjacent to the above coefficient in the same period from the annuity present value table.

finally, according to two adjacent discount rates and the calculated present value coefficient, the internal rate of return of the scheme is calculated by "interpolation method".

(3) defects of internal rate of return.

The IRR indicator has two serious defects:

First, after the inflow of net cash flow in each year, it is assumed that all projects reinvest according to their respective IRR to form value-added, instead of reinvesting all projects according to the unified requirements and the possible rate of return in the unified capital market to form value-added. This assumption is subjective and lacks objective economic basis.

second, for unconventional schemes, there may be multiple internal rates of return according to the above procedures, which makes it impossible for people to judge the real internal rate of return, which brings difficulties to the practical application of this index.

Unconventional scheme refers to an investment scheme in which the net cash flow of each year in the construction, production and operation years is negative in the initial year, sometimes positive and sometimes negative in subsequent years, and the positive and negative signs change more than once.

5. external rate of return

the external rate of return (ERR) is the rate of return when the final value of the original investment amount of an investment scheme is equal to the sum of the final value of the net cash flow calculated according to the benchmark rate of return or the set discount rate.

it can not only calculate the increment of net cash flow in each year according to the unified rate of return, but also avoid multiple internal rate of return problems in unconventional schemes, which can make up for the shortcomings of the above internal rate of return indicators.

6. cash reinvestment rate of return

cash reinvestment rate of return (ERRR) is the investment rate of return obtained by dividing the annual net profit by the original investment amount, and the depreciation expense deducted when determining the annual net profit is the annual depreciation amount calculated according to the sinking fund method.

Applicability: It is especially suitable for an investment scheme where an initial investment occurs and the operating income and expenditure can be basically balanced in each year after it is completed and put into production.

There is a relationship between the cash reinvestment rate of return and the internal rate of return: when calculating the cash reinvestment rate, the discount rate (reinvestment rate) used to accrue annual depreciation according to the sinking fund method is greater than the internal rate of return, and the cash reinvestment rate determined accordingly is also greater than the internal rate of return; The discount rate used is less than the internal rate of return, and the cash reinvestment rate based on it is also less than the internal rate of return.

[ Edit] Static indicators and dynamic indicators

Both dynamic evaluation indicators and static evaluation indicators have their own strengths. In actual evaluation, the two evaluation indicators are usually used together and complement each other, with dynamic evaluation indicators as the main and static evaluation indicators as the supplement.

the calculation process of static indicators is relatively simple than that of dynamic evaluation indicators, but it can only be compared and analyzed between the same or similar M&A cases. The difficulty of evaluating the rationality of payment consideration by static evaluation index lies in analyzing and quantifying the differences between the target enterprise and the M&A case.

The calculation process of dynamic evaluation indicators is relatively complicated, but because they are closely related to value, they can better guide investment decisions. Therefore, although there are some defects in the dynamic evaluation index, such as the complicated calculation process and certain uncertainty, we should try our best to play the role of dynamic evaluation index and take static index as reference index when evaluating the rationality of M&A payment consideration; At the same time, we should also adopt appropriate evaluation indicators according to the actual situation, and at the same time, we should adopt multiple evaluation indicators to conduct a comprehensive evaluation from different aspects.