Direct method

Presenting operating cash flow as gross receipts and payments — cash from customers, to suppliers, to employees. It shows where the cash came from, which a reconciliation from net income does not.

Where you will meet it

Direct method appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Contrast the direct and indirect presentation of operating cash flow
  CFA Level I · Financial Statement Analysis

  “The direct method reports actual operating cash receipts and payments — cash collected from customers, cash paid to suppliers, cash paid to employees — which is more informative for forecasting because each line can be projected separately.”

• Restate an indirect-method cash flow statement in direct form
  CFA Level I · Financial Statement Analysis

  “Each direct-method line can be reconstructed from the income statement and the change in the corresponding balance sheet account.”

See also

Operating cash flow

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with D · Glossary