Complete 4 page APA formatted essay: Cash flow.
From the above hypothetical cash flow, we can see that the cash from operation $2837 million and net profit is $124 million. There is a difference between the cash generated from operating activities and net profit. It is because cash from operations includes capital expenditure, income from sales of plants, equipment and property and cash acquisitions but when we compute net profits then we deduct all the expenditures from the sales revenue. Thus the net profit and cash from operations may not always be equal. A company can earn net profit but it may earn negative cash from operations which indicate the company actually has no cash in its hand.
Cash flow from operating activities can be done by using either direct method or indirect method. These methods are different from each other. In the direct method information about main elements of gross cash payments and gross cash receipts is shown as separate and the information about the receipts and payments can be gathered either from records of accounts or by adjusting the cost of sales, sales and other elements in the income statement. But on the other side in case of indirect method, profit and loss is adjusted on elements which are related to financing and investing activities and effects of noncash transactions like changes in receivables, payables, inventory, provisions, depreciation, amortisation, gains and losses in foreign currency and differed tax liabilities are also adjusted for the items (Thornton, 2012, p.15).