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Why should you add indirect taxes and depreciation?
why should we add indirect taxes and depreciation?
Why is depreciation an adjustment to net income in the operating activities section of the standard statement of cash flows?
When you start from net income to calculate the operativ cashflow you have to (1) add (substract) all operativ expenses (income) that appear in the income statement but did not result in cash in- or outflow, and (2) add (substract) all operativ cash inflow (outflow) that were not income (expense) and thus not recorded in the income statement. The net income plus all these adjustments equals the operativ cashflow. Depreciation were recorded in the income statement as an expense but it did not result in an cash outflow. You have to add it therefore to the net income. The method described above is the indirect method to calculate the operativ cash flow.
What is cash coverage ratio?
The cash coverage ratio is useful for determining the amount of cash available to pay for interest, and is expressed as a ratio of the cash available to the amount of interest to be paid.To calculate the cash coverage ratio, take the earnings before interest and taxes (EBIT) from the income statement, add back to it all non-cash expenses included in EBIT (such as depreciation and amortization), and divide by the interest expense. The formula is: Earnings Before Interest and Taxes + Non-Cash Expenses Interest Expense.
Does depreciation expense increase cash?
Depreciation expense has no affect on cash flows whatsoever. It is simply a method of systematically expensing a long-term tangible asset over its useful life. However, if you are trying to calculate your cash flows from operating activities using the indirect method, depreciation expense is one of the figures you would add to your net income in order to arrive at that number.
Is the discount received added gross profit as income?
yup it is as it is an income so we add it in the gross profit....
How does depreciation affect?
Indirectly. Technically it doesn't, depreciation is a non-cash expense. Depreciation expense does, however show up as a line item on the cash flows statement as an adjustment to operating income to derive net cash from operations... you add it back to income.
How does depreciation affect cashflow?
Indirectly. Technically it doesn't, depreciation is a non-cash expense. Depreciation expense does, however show up as a line item on the cash flows statement as an adjustment to operating income to derive net cash from operations... you add it back to income.
What is a calculation that reports net income and then adjusts the net income amount by adding and subtracting items that are necessary to yield net cash provided by operating activities?
Net income is after deducting non-cash expenses such as depreciation and amortization. To determine net cash, these non-cash amounts must be added back: Net cash = Net income + depreciation + amortization In preparing financial statements, additional adjustments are necessary to account for changes in receivables, inventories, and payables that have occurred between the beginning and the end of the period in question. For example, a net decrease in a current asset such as receivables should be added back to net income, or a net increase in receivables should be subtracted from net income, to get net cash. The opposite is true for changes in payables or other current liabilities - add back a net increase in payables, or subtract a net decrease in payables.
EXPLAIN HOW DEPRECIATION GENERATES CASH FLOW FOR A COMPANY.?
I assume what you are referring to is the fact that if your are using the indirect approach to complete a cash flow statement, you add back depreciation. This step makes it look like depreciation is generating cash flow for the company. The reason for adding depreciation is that when we are preparing our cash flow statement, we are reconciling net income to account for things that are not reflected or things that do not affect cash flows. If we simplify it, we can say that net income equals ( Sales - Expenses ). Depreciation is an expense that decreases our net income, but it is simply an accounting value to match expenses with revenues produced, and does not affect cash. So, since we deducted depreciation to get to net income we need to add it back when we do our cash flow statement to reconcile net income with our cash flow.
What are the revelant cash flows for valuing a share of common stock?
The quick answer is: UNLEVERED FREE CASH FLOW. HERE IS THE BASIC FORMULA. start with EBIT... EBIT (EARNINGS BEFORE INTEREST AND TAXES) less Taxes then add back Depreciation & Amortization add back or subtract Net Working Capital subtract Capital Expenditures = UNLEVERED FREE CASH FLOW
How do you calculate GDP mp?
You have to know that Gross includes Depreciation... And market price includes all the taxes... So...for calculation.. You have to add depreciation to domestic income, i.e; NDP at FC + depreciation....you will now get GDP at FC... Factor cost doesn't include Net Indirect TAX...so you have to add that...and you'll get the answer.... NDP at FC + depreciation + NIT = GDP at MP
Why should you add indirect taxes and depreciation?
why should we add indirect taxes and depreciation?
Why is depreciation an adjustment to net income in the operating activities section of the standard statement of cash flows?
When you start from net income to calculate the operativ cashflow you have to (1) add (substract) all operativ expenses (income) that appear in the income statement but did not result in cash in- or outflow, and (2) add (substract) all operativ cash inflow (outflow) that were not income (expense) and thus not recorded in the income statement. The net income plus all these adjustments equals the operativ cashflow. Depreciation were recorded in the income statement as an expense but it did not result in an cash outflow. You have to add it therefore to the net income. The method described above is the indirect method to calculate the operativ cash flow.
How does depreciation generate actual cash flows for the company?
Depreciation does not generate cash flow. If a million dollar piece of equipment is purchased, an accountant would reflect that the company now owns a million dollar asset. Without depreciation, the company would still show a million dollar asset on the books even though we all know the equipment's value is decreasing. As such, the company's value would be overstated in the books. I found this from Wikipedia, so I believe the above answer should be modified. From Wikipedia - "Depreciation recognized for tax purposes will, however, affect the cash flow of the company, as tax depreciation will reduce taxable profits; there is generally no requirement that treatment of depreciation for tax and accounting purposes be identical. Where depreciation is shown on accounting statements, the figure usually does not relate to depreciation for tax purposes." - The above answer is correct. This is an additional point. Depreciation is a source of funds (not cash). Think about this - When you deduct depreciation from your profits, your net income figure gets reduced and if there is any distribution of cash which is based on net income, the amount of cash that is going out of the business will also be reduced. In that way, the company is able to retain part of its cash within the business that could have gone out, had the depreciation not been done. Additional comment - And even more to add regarding the taxes thing (at least in Canada). Depreciation is not an allowable expense for calculating taxable income. What happens is that you add the depreciation that you expensed back, but then you are allowed to take a deduction for capital cost allowance (at specified rates for the particular class of asset) to calculate taxable income. In the US it is a a legit expense and is typical done with straight line or MACRS. Additional comment - Regarding the first post: depreciation in accounting terms (amortization) is not meant to reflect the value of the asset. Rather, it is the gradual allocation of its cost to expense over its useful life. The fair market value of an asset may increase significantly over its original purchase price while at the same time its book value will decrease yearly due to depreciation. Strictly speaking, depreciation is a non-cash expense (no physical outflow of cash is involved). However, as mentioned above by others, it serves to reduce taxable income, which, in turn, reduces the income tax paid.
Why do you have to add this year's depreciation to the accumulated depreciation from the trial balance when you're doing a balance sheet?
Accumulated depreciation is the contra account in balance sheet to reduce the price of assets from balance sheet and depreciation is the expense account which shows the current year's expense in income statement, so depreciation account is closed in accumulated depreciation account to show the overall reduction in the price of assets for more than one fiscal year.
What is cash coverage ratio?
The cash coverage ratio is useful for determining the amount of cash available to pay for interest, and is expressed as a ratio of the cash available to the amount of interest to be paid.To calculate the cash coverage ratio, take the earnings before interest and taxes (EBIT) from the income statement, add back to it all non-cash expenses included in EBIT (such as depreciation and amortization), and divide by the interest expense. The formula is: Earnings Before Interest and Taxes + Non-Cash Expenses Interest Expense.
What is the definition of broadcast cash flow?
Broadcast cash flow (BCF) is a financial metric for Broadcasting companies. It may be defined as follows: Operating income Add:Depreciation and amortization Add: Programamortization Add: Non-cash equity based compensation Add: LMA fees and corporate overhead Less: Program payments (adjusted to reflect reductions for impaired or expired rights in connection with acquisitions) EBITDA is defined as BCF less corporate overheadexpenses. BCF is reported by some broadcasting companies because it is believed such data is a useful measure for evaluating the Company's operatingperformance. Broadcast cash flow and EBITDA eliminate the effect of depreciation and amortization which relate to acquisitions under the purchase method of accounting and the impact of accelerated program amortization and the impact of corporate expenses, and allow for an evaluation of the operating performance of the Company and its stations relative to that of the Company's competitors which may not have similar depreciation, amortization or corporate structures. The different company's definition of broadcast cash flow and EBITDA may not be comparable to similarly titled measures presented by other companies. Broadcast cash flow and EBITDA are not, and should not be used as an indicator or alternative to operating income Net loss or cash flow as reflected in the consolidated financial statements in organization (source:http://www.irconnect.com/acme/pages/news_releases.html?d=2768)
