For a firm that pays taxes, the short cut (depreciation tax shield) approach to calculating the operating cash flow:

• does not include any of the noncash expenses and their effects.

• ignores taxes but includes interest expense.

• separates cash inflows from cash outflows.

• include the change in net working capital that come from taking on a new project.

• recognizes that depreciation sheilds income from taxes therefore creating a cash inflow.