Identify the starting point for working out the Cash Flow from Operating Activities.

Net profit before tax and Extraordinary items

The correct answer is Option 2 - Net profit before tax and Extraordinary items.

CASH FLOW FROM OPERATING ACTIVITIES-

Net Profit/Loss before Tax and Extraordinary Items
 ADD: Deductions already made in Statement of Profit and Loss on account of Non-cash items such as Depreciation, Goodwill to be Written-off.
 ADD: Deductions already made in Statement of Profit and Loss on Account of Non-operating items such as Interest.
DEDUCT: Additions (incomes) made in Statement of Profit and Loss on Account of Non-operating items such as Dividend received, Profit on sale of Fixed Assets
Operating Profit before Working Capital changes
Add : in case of increase in current assets (other than cash and cash equivalent) and decrease in current liabilities.
Less : in case of decrease in current assets (other than cash and cash equivalent) and decrease in current liabilities.
Cash Flows from Operation Activities before Tax and Extraordinary items
– Income Tax Paid
+/–Effects of Extraordinary Items