Operating activities

Operating activities is the first section of the cash flow statement, showing cash generated or consumed by core trading operations including receipts from customers and payments to suppliers and employees.

ByHoang TruongUpdated July 2, 2026

FrameworkCash flow statement

See it move

Loading infographic...

Cash from operating activities is built, under the indirect method, from net income plus depreciation and amortisation — non-cash charges that reduced profit but never used cash — plus or minus the change in working capital, such as receivables, inventory and payables. A business can report healthy net income while this operating total is negative, if customers are slow to pay or inventory is building up.

Where it fits

SubjectFinancial AccountingCoreTopicThe Financial StatementsCore

The formula

LaTeX

\text{Cash from ops} = \text{Net income} + D + A \pm \Delta\text{WC}

Variables

$N I$: Net income (starting point under the indirect method) (€)
$D$: Depreciation (non-cash charge added back) (€)
$A$: Amortisation (non-cash charge added back) (€)
$Δ W C$: Net change in working capital (receivables, inventories and payables); subtracted when net assets increase, added when net assets decrease (€)

Indirect method; the most common presentation in practice — starts with net income and reverses non-cash items and working capital movements.

Check yourself

PracticeCORE

A company reports net income of €1,400,000. During the year, depreciation was €350,000, accounts receivable increased by €200,000, and inventory decreased by €80,000. Using the indirect method, what is cash generated from operating activities?

Select an answer to check your understanding.