What is Indirect Method Cash Flow Statement?
The indirect method starts the cash flow statement with net income and adjusts it for non-cash items and changes in working capital to arrive at cash from operating activities. It is the most common approach used by listed companies because the data is easy to pull from the income statement and balance sheet.
How It Works
- Start with net income (or profit before tax).
- Add back non-cash expenses like depreciation, amortization and share-based payments.
- Adjust for changes in working capital accounts (receivables, inventory, payables).
- Result: net cash from operating activities.
Saudi Context
Almost all Tadawul-listed companies present operating cash flow using the indirect method because it links directly back to reported net income.
Example
If net income is SAR 100 million, depreciation is SAR 20 million and receivables rose by SAR 5 million, operating cash flow is 100 + 20 – 5 = SAR 115 million.