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Operating Cash Flow

Updated on March 19, 2023

Operating Cash Flow (OCF) is a measure of cash generated by a company’s normal business operations. Operating cash flow is an indicator of a company’s capability to generate sufficient cash flow to maintain and grow its business operations.
In case of absence of required cash flow, the company may require financing from other sources for capital expansion or growth. The OCF is also an important parameter for investors and creditors for assessing the business of a company, its financial strength as well as the future prospects.

Calculation of Operating Cash Flow

OCF can be calculated through two methods
Direct method
It is a simple method and involves the Total Revenues and Expenses
Operating Cash Flow = Total Revenue – Operating expenses
Indirect method
This takes into consideration the change is Assets/Liabilities:
Operating Cash Flow = Net Income +/- change in assets or liabilities + Expenses (Non cash)