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Operating Cash Flow (OCF) is a measure of the amount of cash generated by a company's normal business operations. Operating cash flow is important because it indicates whether a company is able to generate sufficient positive cash flow to maintain and grow its operations, or whether it may require external financing. OCF is calculated by adjusting net incomefor items such as depreciation, changes to accounts receivable and changes in inventory.
BREAKING DOWN 'Operating Cash Flow - OCF'Financial analysts sometimes prefer to look at cash flow metrics because it strips away certain accounting effects and is thought to provide a clearer picture of the current reality of the business operations. For example, booking a large sale provides a big boost to revenue, but if the company is having a hard time collecting the cash, then it is not a true economic benefit to the company. On the other hand, a company may be highly profitable on a cash flow basis, but may not have a low net income if it has a lot of fixed assets and uses accelerated depreciation calculations.
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Excellent question, and thank you for the invitation Operating cash flow is the cash flow generated from the main activities of the institution they rely on:
Net cash income for the period.
Cash received from customers, any resulting sales.
Cash paid to suppliers, ie the price of goods.
Cash paid for taxes.
Cash paid on various expenses.
On the size of the company's operations CFO measures the inflows and outflows of the daily company's transactions and cash settlement like paying taxes , dividends , interest
There are many elements that affect the operating cash flow:- the life cycle of the company- seasonality of operating activities- effective / ineffective management of working capital- size and structure of tangible / intangible assets (amortization is not a cash expenditure)- others elements depending on company's specific (exchange differences, accruals, prepayments, etc.)
The level of operating cash flow depends on the inflow coming from the main source of business like sales or revenue earned from the operation.
The cash flow from operations should not be confused with cash from the company level.
The level of cash flow from operations depends in particular the ability of the company to control its spending.
the financing of immediates expenses can be assured that insofar as the company has realized previously a monetary surplus, a savings, ie sufficient operating cash flow in terms of investissemenmts needs.
The cash flow from operations is very sensitive to the existing lags between the time of realization of operation (physical flow) and the time of collection or the corresponding disbursement (cash flow).
Depends on the company size , interests , inflow & outflow , marketing
It will depend on the cash outflow and cash inflow at some point in time. If the net cashflow is positive then the operating cash flow is positive and vice versa. Knowledge of the operating cash flow is important for firms so as to maintain specific activities on a daily basis.
The level of operating cashflow depends on how much cash a company is able to generate solely from its operating activities or it's core business. It also matters how well any company utilises it's financing cashflow in day to day operations, eg: Optimal capex, maintenance capex, retiring debt, etc.
Operating cashflow is determined by multiple factors - the key factors, however, are - Net income, non cash expenditures, working capital changes, cashflow from discontinued operations