Glossary
Operating cash flow
Cash generated by a company's normal business operations, the first section of the cash flow statement.
On this page
Operating cash flow is the cash a company brings in from its everyday business, selling products and services, minus the cash it pays out to run that business. It appears as the first section of the cash flow statement. Investors watch it because it is harder to dress up than net income: accounting choices can move reported profit, but cash in the bank either arrived or it did not.
How it is calculated
Most US companies use the indirect method: start from net income, add back non-cash expenses, and adjust for changes in working capital.
Under US GAAP, interest paid and income taxes paid are included in operating cash flow, while spending on equipment sits in investing activities and borrowing or buybacks in financing activities.
What to watch for
A company whose operating cash flow consistently trails its net income may be booking revenue it has not collected, or building up inventory. One that consistently beats net income often has large non-cash charges or customers who pay in advance. Working-capital swings can flatter a single year, for example by delaying payments to suppliers. Subtracting capital expenditure from operating cash flow gives free cash flow, the cash available for dividends, buybacks and debt repayment.