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L.9 · INTERMEDIATE · 2 MIN

The Cash Flow Statement: Follow the Actual Money

The indirect method of the cash flow statement starts with net income and adjusts for non-cash items and working capital changes. Over 95% of public companies use this method.

Quiz · 5 questions ↓
§ 01
Look at AAPL's cash flow statement. Walk through the indirect method: net income + D&A + SBC adjustments + working capital changes = operating cash flow.
§ 02

If operating cash flow consistently trails net income, the company may be using aggressive accrual accounting to inflate earnings. Cash flow is the truth serum.

§ 03
Company reports Net Income of $300M. Cash Flow from Operations is $450M. Strong signal? Good business?
Five questions · AI feedback

Sit with the ideas.

Net Income is $100,000. Depreciation is $20,000. Accounts Receivable increased $15,000. Accounts Payable decreased $5,000. What is operating cash flow?

Why:

Other lessons in this course.

  1. 01Accrual vs Cash Accounting
  2. 02Depreciation: Spreading the Cost of Assets
  3. 03Stock-Based Compensation: The Hidden Cost
  4. 04Adjusting Entries: Why Period-End Matters
  5. 05Revenue Recognition: The ASC 606 Five-Step Model
  6. 06Bad Debts: When Customers Don't Pay
  7. 07Inventory: FIFO vs. LIFO and Why It Matters
  8. 08PP&E Deep Dive: Four Depreciation Methods and Asset Disposal
  9. 09The Cash Flow Statement: Follow the Actual Money— reading now
  10. 10DuPont Analysis: Decomposing Return on Equity
  11. 11EPS and Dilution: The Most Watched Number on Wall Street
  12. 12Deferred Taxes: Why Tax Expense Differs from Taxes Paid
  13. 13Lease Accounting: The Hidden Debt That Isn't So Hidden Anymore
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