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Compute Cash Flows From Operations (CFO)

Direct Method- 

Start with cash collections (cash equivalent of sales); cash inputs (cash equivalent of COGS); cash operating expenses; cash interest expense; cash taxes.


Operating Cash Flow – Direct Method

Cash collections from customers


Cash paid to suppliers


Cash paid for operating expenses


Cash paid for interest


Cash paid for taxes


Operating cash flow



Indirect Method

Start with net income, subtracting back gains & adding back losses resulting from financing or investment cash flows, adding back all noncash charges, and adding / subtracting asset & liability a/c that result from operations.


Net Income


Adjustment to net income

Depreciation and amortization

Deferred income tax

Increase in accounts receivables

Increase in inventory

Decrease in prepaid expenses

Increase in accounts payables

Increase in accrued liabilities








Operating Cash flow



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