Direct Method

DEFINITION of 'Direct Method'

A method of creating a statement of cash flows during a given reporting period. The method uses actual cash flow information from the company's operations segment, instead of using accrual accounting values.

Under both the direct and indirect method, the presentation of the cash flow from investing and financing activities will be identical.

BREAKING DOWN 'Direct Method'

Under the direct methods, the only section of the cash flow statement that will differ in presentation is the cash flow from operations section. Since the direct methods uses actual cash flow information, such as the actual cash outflow of all overhead expenses, there usually must be a different method of calculation for the company's internal controls.

RELATED TERMS
  1. Cash Flow From Financing Activities

    A category in the cash flow statement that accounts for external ...
  2. Crop Method

    This method of accounting is available for farmers who do not ...
  3. Cash Flow Statement

    One of the quarterly financial reports any publicly traded company ...
  4. Indirect Method

    A method for creating a statement of cash flows a company may ...
  5. Cash Flow From Investing Activities

    An item on the cash flow statement that reports the aggregate ...
  6. Operating Cash Flow - OCF

    Operating Cash Flow (or OCF) is a measure of the amount of cash ...
Related Articles
  1. Markets

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  2. Retirement

    The Essentials Of Corporate Cash Flow

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself.
  3. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.
  4. Markets

    Cash Flow On Steroids: Why Companies Cheat

    Pressure to be the best can sometimes push corporations to cheat. Learn how they do it and how to spot it.
  5. Economics

    Understanding Cost-Volume Profit Analysis

    Business managers use cost-volume profit analysis to gauge the profitability of their company’s products or services.
  6. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  7. Fundamental Analysis

    5 Basic Financial Ratios And What They Reveal

    Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know.
  8. Investing Basics

    How to Analyze a Company's Inventory

    Discover how to analyze a company's inventory by understanding different types of inventory and doing a quantitative and qualitative assessment of inventory.
  9. Stock Analysis

    Understanding Chipotle's Financials (CMG)

    Learn about Chipotle Mexican Grill and its financial statements, including metrics such as comparable sales, operating margin and returns.
  10. Professionals

    A Day In The Life Of A Public Accountant

    Here's an inside look at the workdays of two experienced CPAs, to give you an idea of what it might be like to pursue a career as a public accountant.
RELATED FAQS
  1. What items are considered liquid assets?

    A liquid asset is cash on hand or an asset that can be readily converted to cash. An asset that can readily be converted ... Read Full Answer >>
  2. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  3. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  4. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  5. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
  6. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center