What Does Discretionary Cash Flow Mean?
Discretionary cash flow is the amount of money that is available to capital providers for withdrawal without affecting the operation or forecasted goals of the organization. Essentially, it is the remaining money that is available once mandatory debts have been paid and capital projects have been financed. Uses of discretionary cash flows might include:
- Common stock buy-backs
- Dividend payouts
- Paying off outstanding debts
Divestopedia Explains Discretionary Cash Flow
The ability to produce discretionary cash flow is often a basis for conducting organization valuation, and it presents a clear indication of the organization's viability. Due to this, the generation and uses of discretionary cash flow can have a huge impact on business performance and value. When evaluating a potential acquisition, a private equity firm will not only look at the current discretionary cash flow of the target company, but also at the anticipated discretionary cash flows that may be available post-acquisition.