Cash flow from operations

The cash the trading business actually produced, after paying suppliers, staff and usually tax, but before spending on new plant and before anything to do with lenders or shareholders. It is the first section of the cash flow statement and the one an analyst reads first.

Most companies present it by the indirect method, which starts at profit before tax and works backwards. Non-cash charges such as depreciation are added back because they reduced profit without moving money. Changes in working capital are then adjusted: inventory that grew consumed cash, payables that grew released it. Interest and tax are handled separately, and the treatment of interest differs enough between Indian and American presentations that comparing two companies means checking where each put it. What survives all of that is the money the operations left in the bank.

A manufacturer earning ₹615 crore of net profit with ₹380 crore of depreciation and a ₹210 crore increase in working capital produced ₹785 crore of operating cash flow.

Profit is an opinion. This is closer to a fact.

Read it first, every time.

One presentational difference between markets catches people out. Under the international standards Indian companies follow, interest paid and dividends received may be classified in the operating section or in financing and investing, and the company chooses, disclosing the policy. American filings put interest paid in operating. Two otherwise identical companies can therefore report operating cash flows that differ by the whole of their interest bill, purely because of where each puts the line. Before comparing the figure across a peer set, check where each one put interest, and normalise if they differ.