Reconciliation of Operating Profit to Net Cash inflow from operating activities question...

[d0wnd0wnd0wn]

Arrggh!

I am in a mental freeze. I think i get it, but i can't explain it in words (the answer to this question:)

Why on the "Reconciliation of Operating profit to net cash flow" statement is depreciation a positive item?

I think it is because Depreciation is a non-cash item, it has been subtracted before operating profit is determined, so we have to add it back on to show that this wasn't a cash charge.

Can anyone explain this so that it makes sense?

[yolande]

Yes you're right. The depreciation will have gone through your profit, but as it was not a cash payment, there is no cash effect. Therefore as it was a cost in your P&L, it is added back to your cash balance.