If amortization is added back to net income in the operations section of the cash flow statement, couldn we increase our cash flow by increasing the amount of amortization each period?
Interesting idea However, remember that increasing amortization, decreases net income. Take the following example: assume that amortization is $10 and the net income is $100. When we add back the amortization of $10 to the net income, the cash flow from operations becomes $110. If we increase the amortization to $15, the net income must drop to $95 because the expense is $5 larger. Now when we add the amortization of $15 to the net income, the cash flow from operations becomes $110, the same as it was before. Increasing or decreasing amortization has a direct effect on net income but no effect on cash flow.
