If Apple’s operating income decreased due to depreciation and interest expense, what would be the net impact on cash flow?

To understand the impact of a decrease in operating income due to depreciation and interest expenses on cash flow, it’s important to consider how these items affect the cash flow statement and net income.

Depreciation is a non-cash expense, meaning that while it reduces operating income, it does not result in an actual cash outflow during the period. Instead, it represents the allocation of the cost of tangible assets over their useful lives. Consequently, when calculating cash flow from operating activities, depreciation is added back to net income, mitigating its negative impact on cash flow.

Interest expense, on the other hand, is a cash outflow that affects cash flow. It represents an actual cost that the company incurs to service its debts and reduces the net income. When calculating cash flow from operating activities, this expense must be subtracted, resulting in a decrease in cash flow.

If we consider both effects together, while depreciation will not decrease cash flow directly, the interest expense will. Therefore, if operating income decreased because of these two factors, the overall net impact on cash flow would be a decrease, primarily driven by the interest expense.

Thus, the right choice reflects that the cash flow decreased — specifically referencing the importance of recognizing that interest expense results in an actual cash