What is the main impact on cash from operations due to an increase in depreciation?

An increase in depreciation has a direct impact on cash from operations due to the nature of depreciation as a non-cash expense. When a company recognizes depreciation, it reduces its taxable income, which subsequently lowers the cash tax liability.

For instance, if depreciation expenses increase, this reduction in taxable income means the company has less tax to pay, leading to an increase in cash flow. The cash flow from operations can rise because the depreciation expense, although it decreases net income on the income statement, does not involve an actual outflow of cash. Instead, it serves to adjust the profit figure by accounting for the wearing out of tangible assets without affecting the cash balance.

In this scenario, if depreciation increases, the resulting effect is reflected positively in the cash flows from operating activities, leading to an uptick in cash available to the company. Therefore, cash from operations will increase as a result of the increase in depreciation.