Identify the correct sequence of the following steps involved in calculating cash flows from operating activities of a company:
(A) Operating profit before working capital changes
(B) Cash generated from operations
(C) Income tax paid
(D) Net cash flow from operating activities
(E) Goodwill amortised
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (E), (A), (B), (C), (D)
Under the indirect method, the net profit before tax is taken step by step to the net cash from operating activities:
(E) Goodwill amortised — first. It is a non-cash expense, added back to the net profit before tax along with other non-cash and non-operating items.
(A) Operating profit before working capital changes — second. This is the figure reached after those adjustments.
(B) Cash generated from operations — third. Changes in current assets and current liabilities are adjusted to reach it.
(C) Income tax paid — fourth. It is deducted from the cash generated from operations.
(D) Net cash flow from operating activities — last. It is the result after tax.
NCERT (2026-27 edition):
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