Indirect Method

The indirect method is a way companies prepare their cash flow statement by adjusting net income (profit) to reflect actual cash flow. It starts with net income, then adds back non-cash expenses like depreciation, and accounts for changes in working capital (such as receivables, payables, and inventories). This approach helps show how operating activities impacted cash, even if there were other accounting adjustments. Essentially, it converts profit figures into a clear picture of cash movement, making it easier to see how much cash the company generated or used during a period.