- CFA Exams
- 2024 Level I
- Topic 5. Financial Statement Analysis
- Learning Module 4. Analyzing Statements of Cash Flows I
- Subject 5. Conversion from the Indirect to the Direct Method
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Subject 5. Conversion from the Indirect to the Direct Method PDF Download
Although the indirect method is most commonly used by companies, the analyst can generally convert it to the direct format by following a simple three-step process.
- Aggregate all revenue and all expenses.
- Remove all non-cash items from aggregated revenues and expenses and break out remaining items into relevant cash flow items.
- Convert accrual amounts to cash flow amounts by adjusting for working capital changes.
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