Module I· Cash Flow Statement ConstructionBasic
Question
What is the difference between the direct and indirect method?
Answer
| Direct method | Indirect method | |
|---|---|---|
| Start | cash receipts minus cash payments | net income |
| Effort | high (cash tracking) | low (from IS + BS) |
| Practice | rare | 95%+ of public companies |
IB standard
Always indirect. Links the income statement and balance sheet cleanly in mathematical terms.
Pitch tip
Senior asks 'which method?' → 'Indirect, the standard in IB modeling'.