Final answer:
Operating cash flows using the indirect method can be positive due to non-cash expenses being added back, changes in working capital leading to more cash on-hand and adjustments being made for non-operating gains or losses.
Step-by-step explanation:
When assessing Cash Flows from Operating Activities using the indirect method, a positive cash flow indicates that the company's core business operations are generating more cash than they are using. There are several factors that could cause operating cash flows to be positive:
- Add back non-cash expenses: This includes the addition of depreciation and amortization expenses, as these charges reduce net income but do not involve actual cash outflows.
- Changes in working capital: A decrease in accounts receivable could indicate that the company is collecting cash from its customers at a faster rate, leading to more cash on hand. Similarly, increases in accounts payable or accrued expenses show that the company is retaining cash by delaying payments to suppliers.
- Adjustments for non-operating gains or losses: Removing the effects of gains or losses from activities that aren't part of the core operations, such as the sale of an asset, helps focus solely on the cash generated or used by the business's regular activities.
Understanding these adjustments when using the indirect method is crucial for analyzing the company's cash flow health and operational efficiency.