Professional Documents
Culture Documents
Statement
Analysis
K R Subramanyam
John J Wild
McGraw-Hill/Irwin
7-2
07
CHAPTER
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Indirect Method
Net income is adjusted for non-cash income
(expense) items and accruals to yield cash flow from
operations
Direct Method
Each income item is adjusted for its related accruals
Both methods yield identical results-only the
presentation format differs.
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7-10
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0
0
0
100
100
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1.
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Cash
CashReinvestment
ReinvestmentRatio
RatioMeasure
Measureof
ofthe
thepercentage
percentageof
of
investment
investmentin
inassets
assetsrepresenting
representingoperating
operatingcash
cashretained
retainedand
andreinvested
reinvested
in
inthe
thecompany
companyfor
forboth
bothreplacing
replacingassets
assetsand
andgrowth
growthin
inoperations:
operations:
Operating
Operatingcash
cashflow
flowDividends
Dividends
Gross
Grossplant
plant++Investment
Investment++Other
Otherassets
assets++Working
Workingcapital
capital