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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.