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Step 1: Indirect Method

March 23, 2011
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The indirect method uses accrual accounting information to present the cash flows from the operations section of the cash flow statement. This is a method for creating a statement of cash flows during any given reporting period. Most companies choose to create only one format, the indirect method, and present it on the face of the cash flow statement. Only rarely does a firm provide the direct method format, the other alternative.

This section is very important for all the CFA candidates, the understanding of this core topic will help you in mastering the concepts of equity valuation. Those who aspire to become good financial modelers, should master this first.

Click here to download an excel sheet which highlights how to use this method.


About the Author

Anil Bains has developed end-to-end financial models for Real Estate, FMCG, Power, Roads and Telecom Sector and released them as Open Source. He has extensive experience in the financial services, analytics and training domain. Apart from making Financial Modeling simple and accessible for the masses, Anil loves playing volleyball and has a mean spike.


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