easy · Principles of Finance

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

1. It accounts for the cash spent on new equipment during the period.
2. It is a non-cash expense that reduced Net Income but did not involve a cash outflow.
3. It represents a cash inflow from the use of long-lived assets.
4. It is a tax shield that increases the firm's cash balance directly.

Sign up free to see the explanation and track your rank →