In arriving at cash from operating activities using the indirect method, subtracting a decrease in accounts payable from net income adjusts net income for transactions that decreased cash, did not affect net income.
Sales are subtracted from the cost of products sold, selling, general and administrative expenditures, operating expenses, depreciation, interest, taxes, and other expenses to arrive at net income (NI).
Investors can use this figure to determine how much a company's revenue exceeds its costs. Revenues fewer costs, taxes, and interest equal net income (NI).
NI is used to compute earnings per share.
Because costs can be concealed via accounting techniques or revenues can be artificially overstated, investors should carefully examine the data used to calculate NI.
In addition, after deducting taxes and deductions from gross income, NI is a person's total income or pre-tax income.
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