Cash flow from assetsis the totalcash flow to creditors and cash flow to stockholders, consisting of thefollowing: operating cash flow,capital spending and change in net workingcapital.
Operating cash flow is the cashgenerated from a firm's normal business activities. Operating cash flowis equal to revenues minus costs, excluding depreciation and interest.Depreciation expense is excluded because it does not represent an actualcash flow; interest expense is excluded because it represents a financingexpense.
Look back at U.S. Corporation's income statement(Table 2.2). We see that earnings before interest and taxes (EBIT)are $694, after deducting $65 depreciation. Adding back the noncash deductionfor depreciation, and subtracting the $212 in current taxes, the firm'soperating cash flow is:
