Which method is predominantly used by companies for calculating net cash flow from operating activities in practice?

Indirect method

The indirect method is predominantly used by companies for calculating the net cash flow from operating activities in practice. The indirect method starts with the net profit before taxation and extraordinary items, which is obtained from the company's income statement. It then adjusts this net profit for various non-cash items, accruals, and income or expenses associated with investing or financing activities. The goal is to arrive at the actual cash flows generated or used by the company's operating activities. While the direct method provides a more detailed breakdown of gross cash receipts and payments, it requires a significant amount of additional data collection and can be more complex to implement. On the other hand, the indirect method is simpler to apply and is often preferred because it uses readily available financial data from the income statement and makes adjustments to reconcile reported net profit with actual cash flows from operations.