Q8: Describe the indirect method of presenting a firm’s cash flows from operating activities in a firm’s Statement of Cash Flows.

A:

Ryman Healthcare has also shown it Cash flows from operating activities using the indirect method in a footnote (Footnote 21). This footnote shows how in 2019 Net profit after tax of $326.0m has been adjusted to calculate the Net operating cash flows of $401.4m. These are adjustments that involve various changes in balance sheet items. For example, the item Occupancy advance ($367.5m) is the difference between Gross occupancy advances in the Balance sheet of Ryman Healthcare in 2019 ($3,203.8m) and in 2018 ($2,836.3m): see Footnote 12. Other examples are movements in Revenue in advance, Trade and other payables, Trade and other receivables and Employee entitlements. There are also non-cash items of Depreciation, Deferred tax and Unrealised foreign exchange loss/(gain). Another key item is Fair value movement of investment properties. With all these adjustments between Ryman Healthcare’s Net profit after tax ($326.0m) and Net operating cash flows ($401.4m), the net difference between these two items ends up being $75.4m.

Also, see Martin’s videos Indirect Method of presenting cash flows from operating activities.