CFA notes seem to include the following as necessary adjustments to Net Income:
Gain on sale of assets, Income on investments accounted for under the equity method I don’t see why asset sales and income on investments wouldn’t provide cash flow, can anyone explain what it is that i don’t understand?
The gain or loss on the sale of assets is removed from the cash flow from operations because all of the proceeds are accounted for in the cash flow from investing section. For example, if a company has a truck on its books for $100 and sells it for $150 there will be a $50 gain on the income statement. Rather than leaving the $50 gain in cash flow from operations, the entire $150 is accounted for in the cash flow from investing section as proceeds from the sale of PPE. In effect, they are shifting the $50 gain from cash flow from operations to cash flow from investing since the company is not in the business of selling trucks.
thanks. of course, don’t know what i was thinking