How do you calculate net cash flows from operating activities
Net cash flows from operating activities can be calculated using the indirect method of the statement of cash flows. This method reconciles net income to the actual cash generated from operating activities by adjusting for non-cash items and changes in working capital.
The formula to calculate net cash flows from operating activities using the indirect method is:
Net cash flows from operating activities = Net income + Non-cash expenses (such as depreciation and amortization) - Non-cash income (such as gains on sales of assets) + Increase in current liabilities - Decrease in current assets + Decrease in current liabilities - Increase in current assets
This calculation provides a more accurate representation of the cash generated or used by a company's core operations during a specific period, excluding any cash flows related to investing or financing activities.