Calculate the real cash generated by your company's core operations
A positive operating cash flow indicates the company is generating cash from its core operations. The higher the better.
Operating Cash Flow (OCF) represents the real cash a company generates from its core business operations during a specific period. Unlike net income which includes non-cash items, OCF shows the actual money flowing in and out from providing services, selling inventory, and other operating activities.
OCF = Net Income + Depreciation & Amortization + Change in Operating Working Capital + Income Tax Payable + Net Other Cash Flows
OCF is a more reliable measure of profitability than net income because it reflects real cash transactions. It's crucial for assessing whether a company can sustain and grow its operations without relying on external financing.
Key Insight: A company can show positive net income while having negative OCF if it's not actually collecting cash from customers or is building up inventory. This is a red flag for investors.
Positive and growing OCF indicates a healthy business generating cash from operations. Negative OCF suggests the company may need external financing to survive.
Declining OCF can signal future problems before they appear in net income. Many companies show OCF declines before earnings drops.
Companies with strong OCF can fund dividends, buybacks, and growth initiatives without taking on debt.
Large discrepancies between net income and OCF can indicate accounting irregularities or aggressive revenue recognition.
OCF is reported in the cash flow statement, one of the three main financial statements public companies must file quarterly. It's typically the first section labeled "Cash Flow from Operating Activities."
A good OCF is positive and growing consistently. As a rule of thumb, OCF should exceed net income over time. The higher the OCF relative to revenue, the more efficient the business.
Focus on: 1) Faster collections from customers, 2) Managing inventory levels efficiently, 3) Negotiating better payment terms with suppliers, 4) Increasing recurring revenue streams, and 5) Reducing non-essential operating expenses.
This calculator provides estimates only and should not be construed as financial advice. The results are based on simplified calculations and may differ from actual financial statements. Always consult with a qualified financial professional before making business decisions.
Operating cash flow is just one metric among many that should be considered when evaluating a company's financial health. By using this calculator, you acknowledge that the results are for illustrative purposes only.