Direct Method

What is the 'Direct Method'

The direct method is 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. Operating Cash Flow - OCF

    Operating Cash Flow (or OCF) is a measure of the amount of cash ...
  6. Cash Flow From Investing Activities

    An item on the cash flow statement that reports the aggregate ...
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. Term

    What Is Stockholders' Equity?

    Stockholders’ equity represents the equity that shareholders own in a company.
  6. Fundamental Analysis

    Value Investing: 5 Tips to Consider in 2016

    Read five tips for value investors to consider in 2016, including how to look beyond traditional metrics and when to expand outside of the value zone.
  7. Investing Basics

    The Weighted Average Of Outstanding Shares

    The quantity of a company’s outstanding shares changes when it issues new shares, repurchases or retires existing ones, or converts others.
  8. Economics

    What Is The Difference Between Revenue And Profit?

    Think of revenue as the top line of a company’s income statement. Profit is the infamous bottom line.
  9. Investing Basics

    Comparing the P&L Statement and the Balance Sheet

    Basically, the balance sheet shows how much a company is worth, while the P&L statement reveals if a company is profitable or not.
  10. Fundamental Analysis

    What Is A Good Gearing Ratio?

    Gearing ratios are useful for evaluating a company’s financial fitness through the figures found on its profit and loss statement.
RELATED FAQS
  1. What is a good debt ratio, and what is a bad debt ratio?

    Learn about the factors that influence how investors and lenders evaluate the debt ratio for a company and why the answer ... Read Answer >>
  2. What items are considered liquid assets?

    Learn what a liquid asset is, some examples of liquid assets, what a non-liquid asset is and what determines whether as asset ... Read Answer >>
  3. Can working capital be depreciated?

    Learn the difference between expensing and depreciation for current and long-term assets, and how working capital can be ... Read Answer >>
  4. Do working capital funds expire?

    Find out how and why a company's working capital can change over time, though the fund does not actually expire, and how ... Read Answer >>
  5. How much working capital does a small business need?

    Learn about the three primary factors that determine how much working capital is needed by a small business, including business ... Read Answer >>
  6. What does high working capital say about a company's financial prospects?

    Learn about net working capital and what a high figure indicates about a company's financial prospects, including the importance ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center