1. What is Operating Cash Flow?

Operating Cash Flow (OCF) measures the cash generated from a company's normal business operations. It indicates whether a company can generate sufficient positive cash flow to maintain and grow its operations, or whether it may require external financing.

2. How Does the Calculator Work?

The calculator uses the indirect method formula for operating cash flow:

Where:

• \( Net Income \) — Company's total earnings after all expenses and taxes
• \( Depreciation \) — Non-cash expense for tangible assets
• \( Amortization \) — Non-cash expense for intangible assets
• \( Changes in Working Capital \) — Net change in current assets and liabilities

Explanation: This formula starts with net income and adds back non-cash expenses, then adjusts for changes in working capital accounts.

3. Importance of Operating Cash Flow

Details: Operating Cash Flow is a key indicator of a company's financial health. It shows the cash-generating ability of core business operations and is often considered more reliable than net income since it's harder to manipulate with accounting practices.

4. Using the Calculator

Tips: Enter all values in USD. Net income, depreciation, and amortization should be positive values. Changes in working capital can be positive or negative - use positive for decreases in working capital and negative for increases.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between direct and indirect method?
A: The indirect method starts with net income and adjusts for non-cash items and working capital changes, while the direct method lists all cash receipts and payments.

Q2: Why add back depreciation and amortization?
A: Depreciation and amortization are non-cash expenses that reduce net income but don't involve actual cash outflow, so they're added back.

Q3: How do changes in working capital affect OCF?
A: Increases in current assets (except cash) decrease OCF, while increases in current liabilities increase OCF.

Q4: What is a good operating cash flow?
A: Consistently positive OCF is generally good. It should be compared to net income - if OCF is consistently lower, it may indicate earnings quality issues.

Q5: Can OCF be negative?
A: Yes, negative OCF can occur during growth phases due to heavy investment in working capital, but sustained negative OCF may indicate financial trouble.