What is operating cash flow?

What is Operating Cash Flow?

Operating Cash Flow (OCF) is a financial metric that measures the net cash generated by a company’s core business activities—such as selling goods or services—over a set period. It reflects a company’s ability to convert sales into actual cash, without relying on external financing or investment income.

Key Components of Operating Cash Flow

Cash Inflows from Operations
Includes cash received from customers for goods or services rendered, effectively capturing real business-generated revenue.

Cash Outflows for Operating Activities
Covers payments for day-to-day costs such as salaries, rent, materials, supplier bills, and other operational expenses.

Adjustments for Non-Cash Items
Adds back non-cash expenses like depreciation and amortization, and adjusts for changes in working capital—e.g., increases in accounts receivable or inventory, or decreases in payables.

Why Operating Cash Flow Matters

Liquidity Indicator: OCF shows how much cash your everyday operations produce—vital for running the business and investing in its future.

Financial Health Check: It reveals whether a company can sustain itself internally or relies on borrowing or issuing equity.

Performance Gauge: External analysts and investors use OCF to assess a company’s operational efficiency and financial resilience.