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Operating Cash Flow

Discover How Operating Cash Flow Paints a Picture of a Company's Financial Health

Compact Explanation

Operating Cash Flow (OCF) Cash generated from core business operations.

Definition of term 'Operating Cash Flow'


Operating Cash Flow, often abbreviated as OCF, is a crucial financial metric that gauges a company's health from the perspective of its core operational cash inflow. In essence, it reflects how much cash a company generates from its day-to-day business activities. To have a complete understanding of a company's financial position, an investor needs to grasp the concept of Operating Cash Flow thoroughly.


Operating Cash Flow is the cash generated from a company's regular business operations. It measures a company's ability to generate sufficient cash to maintain and expand its operations. It can also fulfill the company's obligations, pay dividends, and avoid external financing.

Context and Use

In financial analysis, Operating Cash Flow is used as a key metric to assess a company's financial stability. It is typically used in combination with other financial metrics to analyze a company's efficiency and its ability to generate cash inflow from its business operations.

Detailed Explanation

Operating Cash Flow is calculated using net income, along with adjustments for non-cash items such as depreciation, changes in working capital, and other operational items. This provides a more accurate picture of the cash generated and used in a company's business operations.

Calculating Operating Cash Flow

Operating Cash Flow can be calculated using the following formula:

Operating Cash Flow = Net Income + Non-Cash Expenses + Changes in Working Capital

Example Calculation Case

Let's assume that a company has a net income of $100,000, depreciation costs of $20,000, and an increase in accounts receivable of $10,000 (a decrease in working capital). The Operating Cash Flow would be calculated as follows:

Operating Cash Flow = $100,000 + $20,000 - $10,000 = $110,000


  1. What does Operating Cash Flow tell us about a company? - Operating Cash Flow gives an indication of the cash a company generates from its regular business operations, reflecting its ability to maintain and grow the business.

  2. How is Operating Cash Flow calculated? - Operating Cash Flow is calculated using net income, non-cash expenses (like depreciation), and changes in working capital.

  3. Why is Operating Cash Flow important to investors? - It helps investors assess a company's financial health, operational efficiency, and its ability to generate cash inflow, all of which are essential for investment decisions.

  4. Is a higher Operating Cash Flow always better? - Generally, a higher Operating Cash Flow suggests better financial health. However, it's crucial to compare it with industry peers and consider other financial metrics too.

  5. What's the difference between Operating Cash Flow and Net Income? - While net income includes non-cash expenses and revenues, Operating Cash Flow focuses purely on the cash generated or used in the operations.

  6. Can a profitable company have negative Operating Cash Flow? - Yes, if a company is profitable on paper (net income) but has significant cash outflows due to operational reasons, it can have negative Operating Cash Flow.

Key Takeaways

  1. Operating Cash Flow reflects the cash a company generates from its regular business operations.

  2. It's an important indicator of a company's financial health and efficiency.

  3. The formula to calculate Operating Cash Flow includes net income, non-cash expenses, and changes in working capital.


Operating Cash Flow is a critical measure for assessing a company's financial health and operational efficiency. It provides a clearer picture of a company's ability to generate cash from its business operations, which is essential for maintaining and expanding the business. Understanding the nuances of Operating Cash Flow can assist investors in making informed decisions.


This article is intended for informational purposes only and does not constitute financial advice. Always conduct your own research and consult with a professional financial advisor before making any investment decisions.