Operating Cash Flow Calculator
Operating cash flow (OCF) measures the cash generated by a business's core operations — before investing or financing activities. It is a key indicator of financial health, often considered more reliable than net income because it is harder to manipulate with accounting choices.
How it's calculated
OCF = Net income + Depreciation & amortisation − Increase in receivables − Increase in inventory + Increase in payables
Changes in working capital reduce OCF when cash is tied up (rising receivables/inventory) and increase it when payment terms improve (rising payables).
Frequently Asked Questions
- Why is operating cash flow different from net profit?
- Net profit includes non-cash items like depreciation and is affected by accrual accounting (revenue recognised when earned, not when received). OCF adjusts for these to show actual cash movement. A profitable business can still have negative OCF if it is not collecting cash efficiently.
- What does a negative OCF mean?
- Negative OCF means the business is consuming cash in its operations. This is sometimes acceptable for high-growth companies investing heavily in inventory and receivables, but sustained negative OCF in a mature business is a warning sign.
- What are changes in working capital?
- Working capital changes reflect cash tied up in day-to-day operations. If receivables increase (customers owe more), cash is tied up — reducing OCF. If payables increase (you owe suppliers more), you are using supplier credit — increasing OCF. Rising inventory ties up cash, reducing OCF.