Operating Cash Flow Measure

An Operating Cash Flow Measure is a cash flow measure of the amount of cash a company generates from the revenues it brings in, excluding costs associated with long-term investment on capital items or investment in securities.

• AKA: OCF, Free Cash Flow from Operations.
• Context:
  • It can range from being a For-Profit Operating Cash Flow to being a Not-for-Profit Operating Cash Flow.
• Example(s):
  • …
• Counter-Example(s):
  • Capital Expenditures.
  • Free Cash Flow.
• See: Bad Debt, Financial Accounting, Cash, Company, Revenue, Cost, Investment, Financial Capital, Securities, Tax, Interest, Dividend.

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References

2016

• (Wikipedia, 2016) ⇒ https://en.wikipedia.org/wiki/operating_cash_flow Retrieved:2016-10-7.
  • In financial accounting, operating cash flow (OCF), cash flow provided by operations, cash flow from operating activities (CFO) or free cash flow from operations (FCFO), refers to the amount of cash a company generates from the revenues it brings in, excluding costs associated with long-term investment on capital items or investment in securities. The International Financial Reporting Standards defines operating cash flow as cash generated from operations less taxation and interest paid, investment income received and less dividends paid gives rise to operating cash flows. To calculate cash generated from operations, one must calculate cash generated from customers and cash paid to suppliers. The difference between the two reflects cash generated from operations.

    Cash generated from operating customers

    • revenue as reported
    • - increase (decrease) in operating trade receivables (1)
    • - investment income (Profit on asset Sales, disclosed separately in Investment Cash Flow)
    • - other income that is non cash and/or non sales related
  • Cash paid to operating suppliers
    • costs of sales- Stock Variation = Purchase of goods. (2)
    • + all other expenses
    • - increase (decrease) in operating trade payables (1)
    • - non cash expense items such as depreciation, provisioning, impairments, bad debts, etc.
    • - financing expenses (disclosed separately in Finance Cash Flow)
  • (1): operating: Variations of Assets Suppliers and Clients accounts will be disclosed in the Financial Cash Flow

    (2): Cost of Sales = Stock Out for sales. It is Cash Neutral. Cost of Sales - Stock Variation = Stock out - (Stock out - Stock In)= Stock In = Purchase of goods: Cash Out

2015

• http://www.investopedia.com/terms/o/operatingcashflow.asp
  • QUOTE: Operating cash flow is a measure of the amount of cash generated by a company's normal business operations. Operating cash flow indicates whether a company is able to generate sufficient positive cash flow to maintain and grow its operations, or it may require external financing for capital expansion. Generally accepted accounting principles (GAAP) require public companies to calculate operating cash flow using an]]indirect method]] by adjusting net income to cash basis using changes in non-cash accounts, such as depreciation, accounts receivable and changes in inventory.

    … Operating cash flow represents the cash version of a company's net income. Because Generally Accepted Accounting Principles (GAAP) requires the net income to be reported using an accrual basis, it includes various non-cash items, such as stock-based compensation, amortization and expenses that were incurred but not paid for. Also, net income must be adjusted for any changes in working capital accounts on a company's balance sheet. In particular, increases in accounts receivables represent revenues booked for which cash has not been collected yet, and such increases must be subtracted from the net income. However, reported increases in accounts payable represent expenses accrued, but not paid for, resulting in addition to the net income.

    Operating cash flows concentrate on cash inflows and outflows related to a company's main business activities, such as selling and purchasing inventory, providing services and paying salaries. Any investing and financing transactions are excluded from operating cash flows and reported separately, such as borrowing, buying capital equipment and making dividend payments. Operating cash flow can be found on a company's statement of cash flows, which is broken down into cash flows from operations, investing and financing.

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