Operating Cash Flow (OCF) is a measure of the cash generated by a company’s regular operating activities. OCF provides insight into the actual cash inflows and outflows that result from day-to-day business operations. This metric helps investors and management understand the company’s liquidity position and its ability to generate cash to meet financial obligations like debt repayments, dividends, or reinvestment in the business.

How is Operating Cash Flow Calculated?

The indirect method of calculating OCF starts with Net Income and adjusts for non-cash items like depreciation and changes in working capital (e.g., receivables, payables, and inventory). It also factors in cash outflows for interest and taxes.

$\text{OCF} = \text{Net Income} + \text{Depreciation} + \text{Amortization} + \text{Changes in Working Capital} – \text{Interest} – \text{Taxes}$

What is OCF Useful For?

OCF is a critical metric for understanding how much cash a company generates from its core business operations. It’s an accurate reflection of liquidity because it includes the effects of changes in working capital, taxes, and interest payments.

For businesses focused on cash management or capital-intensive industries, OCF is a key measure of financial health.