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