[Verse 1]
When companies report their cash from operations
There are two different ways to show the information
Direct method lists the actual cash that flows
Every payment and receipt that comes and goes
Cash from customers, cash to suppliers
Interest and taxes, all the cash fires
Shows you exactly where the money went
A clear picture of how the cash was spent
[Chorus]
Direct shows the cash, what really moved around
Indirect starts with profit, then adjusts what's found
Direct is clear and simple, but takes more time to make
Indirect is easier, that's the path most companies take
Add back depreciation, subtract the gains
Adjust for working capital, that's how it remains
Direct or indirect, same total in the end
Choose your method wisely, on reporting you depend
[Verse 2]
Indirect method starts with net income on the page
Then adjustments come to turn that into cash we gauge
Add back depreciation, it's expense but not cash out
Subtract the gains on sales, remove that accounting clout
[Chorus]
Direct shows the cash, what really moved around
Indirect starts with profit, then adjusts what's found
Direct is clear and simple, but takes more time to make
Indirect is easier, that's the path most companies take
Add back depreciation, subtract the gains
Adjust for working capital, that's how it remains
Direct or indirect, same total in the end
Choose your method wisely, on reporting you depend
[Bridge]
Working capital changes need adjustment too
Accounts receivable up means cash we never knew
Inventory increases, that's cash we had to pay
Accounts payable up means cash we kept today
[Verse 3]
Most companies choose indirect, it's simpler to prepare
Using numbers from statements that are already there
But direct method's clearer for users who want to see
Exactly how the cash moved, where it came to be
[Chorus]
Direct shows the cash, what really moved around
Indirect starts with profit, then adjusts what's found
Direct is clear and simple, but takes more time to make
Indirect is easier, that's the path most companies take
Add back depreciation, subtract the gains
Adjust for working capital, that's how it remains
Direct or indirect, same total in the end
Choose your method wisely, on reporting you depend
[Outro]
Same cash flow total, just different ways to show
How operating activities made the money flow