Question

briefly explain how we could calculate the operation cash flow

Answer 1

Cash flow from operations refer to the cash flow that arise from core activities of the business. In other words, if an airline company operate 50 airplanes then revenue and costs from such operation only will be considered to compute the cash flow from operations. Also, non cash items which were deducted from statement of profit and loss will be added back to net income.

Following is the brief format for computation of cash flow from operations:

Cash flow from operations = Net income + Depreciation and amortization + Stock-based compensation + Other operating expenses and income + Deferred income taxes – Increase in inventory – Increase in accounts receivable + Increase in accounts payable + Increase in accrued expense + Increase in unearned revenue

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