A company reports its net income after tax (net profit) on the income statement. That net income is reduced if the company is subtracting large amounts for depreciation/amortization. If a company bought a printing press for $1 million cash a while ago, they might be subtracting $100,000 a year until they've written down the cost to zero, in order to spread the cost over the useful life of the equipment. But those subtractions now are not cash--they are a reality check. Since depreciation/amortization is a non-cash subtraction on the income statement, analysts often add back that subtraction to the net income in order to estimate how much cash the company is generating.
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