Cash Flow Stmt.

Net Earnings or Net Income

When a company reports “net earnings”, that number is based on accrual accounting, which includes lots of non-cash items like depreciation, changes in inventory, or gains and losses on assets. But the cash flow statement is focused on actual cash movement. Not just accounting entries.

Adjustments to reconcile net income to net cash

Non-cash items and working capital changes added or subtracted to translate net income into actual cash generated

What is “Depreciation and Amortization”

Non-cash expenses that spread out the cost assets over time - added back because they reduce income but not cash

Why adjust for “accounts receivables”?

A rise means cash went out(customers haven’t paid yet); a drop means cash came in (they paid up).

What does a change in “Inventory” represent?

Buying inventory uses cash; selling it frees up cash. A decrease boosts cash flow.

What about “Accounts Payable”?

If it’s rising, the company is delaying payments (saving cash); if it’s falling, it’s paying bills (using cash).