Reporting and Interpreting Cash Flows from Operating Activities from an Analyst's Perspective (Indirect Method)
Time Warner Inc. is a leading media and entertainment company with businesses in television networks, filmed entertainment, and publishing. The company's 2008 annual report contained the following information (dollars in millions):
Net loss | $(13,402) |
Depreciation, Amortization, and impairments | 34,790 |
Decrease in receivables | 1,245 |
Increase in inventories | 5,766 |
Decrease in accounts payable | 445 |
Additions to equipment | 4,377 |
Required:
1. Based on this information, compute cash flow from operating activities using the indirect method.
2. What were the major reasons that Time Warner was able to report a net loss but positive cash flow from operations? Why are the reasons for the difference between cash flow from operations and net income important to financial analysts?
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