Cash flow from operations (CFO)

What it means

Cash generated by the core business, before investment and financing.

The exam angle

The indirect method starts at net income and adds back non-cash charges and working capital movements. Classification of interest paid differs between IFRS and US GAAP.

Where it appears in the syllabus

• Financial Statement AnalysisCFA Level I · exam weight 11–14% · The three statements, inventories, long-lived assets, quality of earnings.

Related terms

• Accrual accountingRecognising revenue when it is earned and expenses when they are incurred, regardless of when cash moves.
• Balance sheetA statement of what a company owns and owes at a single point in time.
• Book valueThe accounting value of equity: assets less liabilities as reported.
• Cash conversion cycleThe time between paying for inventory and collecting cash from the customer.
• Current ratioCurrent assets divided by current liabilities, a rough test of short-term solvency.
• Deferred taxTax arising from timing differences between accounting profit and taxable profit, recognised as an asset or a liability.