What is incremental cash flow?

Incremental cash flow is the difference between the current cash flow and the potential cash flow of a company, should it make a capital investment. The concept is also measured by an equation which states that operating cash flow equals the excess of cash inflow over cash outflow.

Businesses use incremental cash flow analysis in their capital budgeting and investment decisions to evaluate whether a potential initiative will be profitable or not. A negative incremental cash flow suggests that a potential venture is likely not worth the investment, while a positive incremental cash flow reflects the project may yield benefits for an enterprise.