Indirect approach

The indirect approach to cash flow calculation (méthode indirecte) starts from net income and works back to operating cash flow by adding non-cash charges (depreciation, amortisation, provisions) and adjusting for working capital movements. It is the most commonly used presentation format in IFRS cash flow statements and contrasts with the direct approach (which lists actual cash receipts and payments). In financial due diligence, the indirect method cash flow statement is a key reconciliation tool: differences between operating cash flow and EBITDA reveal working capital trends, and discrepancies with reported earnings can signal accounting manipulation.

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Example: a company reports CHF 2.0 million EBITDA but only CHF 0.4 million of operating cash flow under the indirect method — a CHF 1.6 million gap explained by a working capital increase hidden in the income statement. This reconciliation triggers a detailed working capital analysis revealing aggressive revenue recognition and understated provisions, directly impacting the normalised EBITDA and the completion accounts reference.

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Hectelion uses the indirect method cash flow statement as a systematic cross-check of earnings quality in every financial due diligence engagement.