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How does the depreciation adjustment in OCF compare to the investment in property, plant and equipment...

How does the depreciation adjustment in OCF compare to the investment in property, plant and equipment on a statement of cash flows?

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Answer #1

OPERTAING CASH FLOWS : THIS IS THE CASH FLOW AVAILABLE TO THE FIRM AFTER PAYING FOR ALL THE OPERATING EXPENSES. IT IS THE CASH AVAILABLE OR USED UP IN MANAGING THE CORE OPERATIONS OF THE BUSINESS.

DEPRECIATION IS A NON CASH ADJUSTMENT. HENCE IT SHOULD BE ADDED BACK WHEN CALCULATING OPERATING CASH FLOWS FROM NET INCOME AND THE DEPRECIATION TAX SHIELD IS ADDED BACK, WHEN CALCULATED FROM THE EBITDA.

IN THE OPERATING CASH FLOWS DEPRECIAITION IS ADDED BACK AS IT IS A NON CASH CHARGE THE CASH FLOWS FORM INVESTING ACTIVITIES ACCOUNTS FOR THE INVESTMENT IN PROPERTY,PLANT AND EQUIPMENT AS A OUTFLOW OF CASH IN THE STATEMENT OF CASH FLOWS.

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