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Adjustable Flow
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Operating Cash Flow
The cash flow from operating activities shows it is sufficient to repay the debt, pay dividends and invest or not without the external funds. It represents the net increase of decrease in cash from the operations. The rules of how to prepare it is very important, read the below, it can give you some help:
There are two methods to prepare: the direct and indiret method. The direct method shows operating cash receipts and payments, including: cash receipts from customers, cash payments to suppliers and cash payments and on behalf of employees. The indirect method starts with profit before tax and adjusts it for non-cash charges and credits to reconcile it to the net cash flow from operating activities.
In direct method, you should know the sales from customers, the purchases to suppliers, the wages paid to the employees. Here, you must master how to add or minus the corresponding figure.
In indirect method, operating activities only records the inflows and outflows according to the trading. But profit before tax is using the accruals concept. You should adjust the profit before tax into the operating according the trading. So you must understand the depreciation, profit/loss on disposal of non-current asset, balance sheet change in receivables, balance sheet change in inventories, and balance sheet change in payables. And you can't forget the interest paid and dividends paid. It's complex in this part, you need understand the meaning of the adjusting details.
This is the beginning of preparing the cash flow statement, you should know the investing and financing.
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