Definition
Operating Cash Flow
Operating cash flow is the cash a company generates from its core business operations, before investing and financing activities.
Operating cash flow starts from net profit and adjusts for non-cash items like depreciation and for changes in working capital, isolating the cash the core business actually throws off. It is the most important section of the cash flow statement.
Strong, growing operating cash flow signals that reported profits are converting into real cash. A company with healthy profits but weak operating cash flow may be tying up cash in receivables or inventory, a red flag analysts probe via the cash conversion cycle.
Related terms
- Free Cash FlowFree cash flow (FCF) is the cash a company has left after paying operating expenses and capital expenditure, available to reward investors or grow.
- Working CapitalWorking capital is the money a company needs to fund day-to-day operations, calculated as current assets minus current liabilities.
- Cash Flow StatementThe cash flow statement reconciles a company's profit to its actual cash movements, split into operating, investing and financing activities.
- Investing Cash FlowInvesting cash flow is the cash a company spends on or receives from buying and selling long-term assets and investments.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.