easy · Principles of Finance financial-statements-markets-wc

In a reconciliation of Net Income to Cash Flow from Operations, why is Depreciation added back?

1. Cash spent on new equipment is capitalized as Capex and shown in Investing, not adjusted here.
2. It is a non-cash expense that reduced Net Income but did not involve a cash outflow.
3. It represents cash inflow generated by using the firm's long-lived productive assets.
4. It is a tax shield that directly increases the firm's cash balance each period.

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