I conducted a consulting assignment earlier this week, where I reviewed a client’s operation, including their approach to calculating and reporting returns. A question came up as to whether or not cash flows can be netted if they occur on the same day. My initial reaction was that it would probably be okay; but after thinking about my general recommendation that inflows be treated as start-of-day events and outflows as if they occur at the end of the day, I decided to avoid committing to an answer without doing a bit of research.
This research proved to be fun and insightful for me, as it broadened my views a bit on cash flows, in general. While I still hold to my general position that inflows should, by default, be treated as start-of-day events and outflows as end-of-day, I also believe that there can be exceptions, which has always been my view. But in the course of my review, this point came home “loud and clear.”
Space does not allow me to go into this topic in depth, other than to say that in general, “NO, it’s not a good idea to net flows.” I will opine on this at length in this month’s newsletter. A little teaser, perhaps? If you have thoughts in the interim, please let me know!