In order to accurately estimate cash flow from operations, depreciation must be added back to net income. The reason for this is that even though depreciation is deducted from revenue it is really a non-cash charge.

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Depreciation is a non-cash charge that reduces net income but does not actually involve any cash outflow. Therefore, it must be added back to net income in order to accurately calculate cash flow from operations.

In Order to Accurately Estimate Cash Flow from Operations, Depreciation