It is my understanding that many of the entries on the cash flow statement can be derived from changes
on the balance sheet. For example, changes in current assets (apart from cash) show up in the portion
of the cash flow statement related to operating activities. There is an inverse relationship between the
two entries; an increase in a current asset shows up on the cash flow statement as a negative number
whereas a decrease in a current asset shows up as an increase on the cash flow statement. Similarly,
a change in current liabilities on the balance sheet also results in a change in the operations portion of
the cash flow statement, except that the change here is positively related (an increase in current
liabilities on the balance statement is also an increase on the cash flow statement).

Perhaps this is just something they teach as theory in business school because when I look at a
company's actual financial statements, no such correlation seems to exist.

For instance, Dolby's (DLB) 2006 balance sheet shows the following current asset entries:

Balance Sheet 2006 2005 Difference
Current Assets
Restricted cash 210 205 5
Inventories 11,104 11,722 (618)
Deferred Income Taxes 44,568 31,183 13,385

But when I turn to the cash flow statement the numbers I get are nowhere near, except for restricted cash:

Cash flow from Ops 2006
Restricted Cash (5)
Inventories (1,700)
Deferred Income taxes (18,694)

I get similar results with 10K financials from other companies.

What am I missing? I've asked others who explain that adjustments elsewhere as well as changes in the income statement have to be accounted for.

Thanks for all replies.

Neo,
Thanks.
I may have taken things too literally when I read: "Assuming that the cash flow statement is being prepared using the indirect method (the method used by most companies) the differences in a company's balance sheet accounts will provide much of the needed information." Pg. 3 Accounting Coach Cash Flow Statement. Also:
"Take a look at the summary below--it shows where the changes in balance sheet
accounts should be entered on your statement of cash flows:
A change in this balance sheet category ...is reported in this section of the cash flow statement
Current Assets* Operating Activities
Current Liabilities Operating Activities
Long-term Assets Investing Activities
Long-term Liabilities Financing Activities
Stockholders' Equity Financing Activities
*This refers to current assets other than Cash." pg.6

danleik, the problem with real life accounting (lol!) is that the balance sheets of companies are a lot more complicated that they give in college theories. maybe, you missed some items that does not qualify to the indirect method category. i suggest you use the direct method. maybe this way, you'll see what you missed.