Everything about Operating Cash Flow totally explained
In
financial accounting,
operating cash flow (OCF),
cash flow provided by operations or
cash flow from operating activities, 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.
Operating cash flow = Cash generated from operations less taxation and interest paid, investment income received and less dividends paid gives rise to operating cash flows per International Financial Reporting Standards.
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 customers
revenue as reported
- increase (decrease) in
trade receivables
- investment income (disclosed separately)
- other income that's non cash and non sales related
Cash paid to suppliers
costs of sales
+ other expenses as reported less
- increase (decrease) in
trade payables
- non cash items such as
depreciation, provisioning, impairments,
bad debts, etc.
- financing expenses
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 isn't 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.
Further Information
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