Definition
Cash flow volatility measures how much cash inflows and outflows swing over time, affecting liquidity risk.
Formula
Volatility = standard deviation of cash flow over time
Example
If monthly net cash flow varies between -$300k and +$200k, volatility is high.
How to use it
- Volatility increases the value of a larger cash buffer.
- Use rolling windows to observe trend changes.
Common mistakes
- Ignoring seasonality when interpreting volatility.
- Using revenue volatility as a proxy for cash volatility.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Cash Flow Volatility" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Read the related guide (e.g., Cash runway: how to estimate burn, break-even, and survival time) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- IRR Calculator: Estimate internal rate of return (IRR) for an investment using yearly cash flows.
- Discounted Payback Period Calculator: Estimate discounted payback period using a discount rate (and compare to simple payback).
- Cash Runway Calculator: Estimate runway from cash balance, revenue, gross margin, and operating expenses (optionally with revenue growth).
- Break-even Pricing Calculator: Compute contribution margin, break-even units, and profit at a given volume based on price and variable costs.
- DCF Valuation Calculator: Estimate enterprise value using a simple DCF: forecast cash flows, apply a discount rate (often WACC), and add a terminal value.
Guides
- Cash runway: how to estimate burn, break-even, and survival time: A practical guide to runway: net burn, gross profit, break-even revenue, and how to avoid common cash planning mistakes.
- Runway and burn: gross vs net burn, working capital, and cash levers: A practical guide to runway: compute net burn, understand why cash differs from profit, and how working capital and collections change runway.