Excess cash flow, also known as residual income, is a term that is typically used in business and finance. Simply put, it is any cash surplus that is produced by a business. It is generally evaluated on a quarterly or annual basis to assess a company’s financial health.

By calculating the amount of its excess cash flow, a business can identify areas in which it could make improvements in order to become more profitable. Excess cash flow is typically generated when a company’s expenses, such as cost of sales, taxes, and other general expenses are lower than its overall revenues. When this occurs, the company has a significant amount of money left over that can be used for any number of purposes.

Generally, the amount of excess cash flow is used to repay any loans or bonds outstanding that the company may have. This is a way for lenders to maintain control of their loan and make sure that their debt is being taken care of. In addition to this, excess cash flow can be used for other investments in the company such as research and development, new projects, or to pay dividends.

Overall, understanding the concept of excess cash flow is important for businesses and lenders alike. From the company’s perspective, it is important to understand where the extra money is coming from in order to improve the company’s financial situation. Finally, for the lenders, having access to a company’s excess cash flow is important to ensure that their loan is being taken care of in a timely manner.