Operating cash flow

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In financial accounting, operating cash flow (OCF), cash flow provided by operations or cash flow from operating activities (CFO), 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.[1] 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.[2] 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

Operating Cash Flow vs. Net Income, EBIT, and EBITDA [edit]
Interest is an operating flow. Since it adjusts for liabilities, receivables, and depreciation, operating cash flow is a more accurate measure of how much cash a company has generated (or used) than traditional measures of profitability such as net income or EBIT. For example, a company with numerous fixed assets on its books (e.g. factories, machinery, etc.) would likely have decreased net income due to depreciation; however, as depreciation is a non-cash expense[3] the operating cash flow would provide a more accurate picture of the company's current cash holdings than the artificially low net income.[4]

Earnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability based on net working capital. The difference between EBITDA and OCF would then reflect how the entity finances its net working capital in the short term. OCF is not a measure of free cash flow and the effect of investment activities would need to be considered to arrive at the free cash flow of the entity.

Operating Cash Flow (OCF)

What Does Operating Cash Flow (OCF) Mean? The cash generated from the operations of a company; generally defined as revenues minus all operating expenses but calculated through a series of adjustments to net income. The OCF can be found on the statement of cash flows. Also known as cash flow provided by operations or cash flow from operating activities. One method of calculating OCF is shown here: Investopedia explains Operating Cash Flow (OCF) Operating cash flow is the cash that a company generates as a result of normal business operations. It is arguably a better measure of a business's profits than is earnings because a company can show positive net earnings (on the income statement) and not be able to pay its debts. It is cash flow that pays the bills: OCF also can be used to check on the quality of a company's earnings. If a firm reports record earnings but negative cash, it may be using aggressive accounting techniques.

TERMINAL CASHFLOWS
Terminal cash flow is an accounting term used when analyzing capital budgets for a business or company. While cash flow describes the income and expenses of a business, terminal cashflow describes the income and expenses of a business at the end of or termination of a specific project or period of time. The term can also describe the value of a machine after it is scrapped or salvaged, after deducting any tax or net working value the business is able to recover from the device during its ownership or possession. For example, a company wants to increase its present value figures by purchasing a new machine because the new equipment enables the company to increase its production. The cost of buying the new machine is $200,000 US Dollars (USD), the life of the machine is five years, and its scrap value after that is $25,000 USD. After the company buys the machine, theworking capital requirements to maintain and operate the machine will cost the business $10,000 USD. At the end of the lifetime of the machine, terminal cash flow value of the machine can be determined. To calculate this, the salvage value of the machine is added to the amount the business recovers in working capital by having and using the machine. In this case, theterminal cash value equals $25,000 USD plus the $10,000 USD for a total of $35,000 USD. Another way to look at this figure is to consider it as the value of an item or assets after discounting for certain considerations. For example, the cash flow is a projected or estimated number that is determined for a certain number of periods or years. When the set period ends, then the annual

projections can be calculated more accurately. Instead of calculatingcash flow for each of the individual years over the projected period, terminal cash flow is the calculation of the total value for the entire period. When an assumption is made that the rate of growth is constant, then a slightly different equation is used. In this case, the equation is that the value equals the expected cash flow of the next period, divided by the discount rate, minus the expected growth rate. The consistency of the cash flow or growth rate eventually becomes less volatile for the company or business for which the accountants are calculating terminal cash flow for a specific project or piece of equipment or machinery.