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Glossary

Operating Cash Flow

Operating Cash Flow refers to the cash generated or used by a company's core business operations within a specific period, excluding financing and investing activities.

What is operating cash flow and its significance?

Operating cash flow (OCF) delineates a company's capability to generate cash from its day-to-day business activities. This metric is derived by subtracting a company's capital expenditures from its operating cash inflows. It serves as a crucial gauge of a company's financial well-being, showcasing the cash amount it can generate from routine operations.

How to calculate operating cash flow effectively

Determining operating cash flow involves subtracting capital expenditures from operating income, showcasing a company's capacity to generate cash to cover expenses and invest in new endeavors.

Reasons for utilizing operating cash flow

Operating cash flow is a fundamental metric for evaluating a company's financial health, highlighting the cash generated from its operational activities. This metric showcases the available cash for bill payments, operational funding, and gauges the company's cash generation potential.

Understanding the limitations of operating cash flow

While operating cash flow (OCF) provides insights into a company's ongoing cash generation, it presents limitations. Notably, it does not account for non-operational cash flows, changes in working capital, cash from discontinued operations, and can be affected by accounting choices.

Illustrative examples of operating cash flow

Operating cash flow exemplifies cash sourced from a company's regular business operations, encompassing revenue from goods, services, receivables, payables, inventory, debt payments, and capital expenditures.

Differentiating operating cash flow from free cash flow

Operating cash flow (OCF) represents cash generated from a company's core operations, whereas free cash flow (FCF) signifies the leftover cash post-expense payments, including capital expenditures. FCF denotes the cash available to the company's shareholders, differing from OCF, which focuses on core operations' cash flow.