REPORTING CASH FLOWS FROM OPERATING ACTIVITIES (USING INDIRECT METHOD)

The cash from operating activities is the ‘cash generated from operations’ less interest and tax actually paid in the year.

There are two ways of getting to ‘cash generated from operations’, the direct method and the indirect method.

With the indirect method, we start with Profit before tax, and then have to make some adjustments for:

A. Non cash items, eg depreciation, provisions, profits/losses on the sale of assets

B. Changes during the period in inventories, receivables and payables

C. Other items, the cash flows from which should be classified under investing or financing activities 

PROFORMA

Cash flows from operating activities                           $

Profit before taxation                                                    x

Adjustment for:

            Depreciation                                                    x         

            Foreign Exchange Loss                                    x

            Loss on Disposal of asset                                x

            Interest Expenses (net)                                    x

            Profit on disposal of asset                              (x)        

            Investment Income                                        (x)

                                                                                 x

            Decrease in inventories                                  x

            Increase in Trade Receivables                      (x)

            Decrease in Trade Payables                         (x)

Cash generated from operations                                 x

Interest Paid                                                             (x)

Income tax paid                                                        (x)

Net cash from operating activities                               x