What effect does depreciation have on the Cash Flow Statement after a year for a company with high-yield debt?

Depreciation has a unique role in the cash flow statement, acting as a non-cash expense. When depreciation is recorded on the income statement, it reduces the company's taxable income, thus lowering the income tax liability. Despite this reduction in taxable income, since depreciation does not involve an actual outflow of cash, it is added back to net income when calculating cash flow from operations.

For a company with high-yield debt, managing cash flow is particularly critical since such companies usually face higher interest obligations. The addition of depreciation back into cash flow means that the cash flow from operations will appear increased on the cash flow statement, even though the company's accounting profit is reduced. This is important as an increased cash flow from operations can be used for various purposes, including servicing high-yield debt or reinvesting in the business.

While depreciation does not directly produce cash, it has a beneficial effect by enhancing the cash position reflected in the cash flow statement, particularly when considering the financial obligations that a company with high-yield debt needs to manage.