1. What is Operating Cash Flow?

Operating Cash Flow (OCF) measures the cash generated from a company's normal business operations. It indicates whether a company can generate sufficient positive cash flow to maintain and grow its operations, or whether it may require external financing.

2. How Does the Calculator Work?

The calculator uses the Operating Cash Flow formula:

Where:

• \( EBIT \) — Earnings Before Interest and Taxes
• \( Depreciation \) — Non-cash expense for asset wear and tear
• \( Taxes \) — Cash taxes paid during the period
• \( \Delta Working Capital \) — Change in working capital (current assets - current liabilities)

Explanation: This formula starts with EBIT, adds back non-cash expenses (depreciation), subtracts actual cash taxes paid, and adjusts for changes in working capital requirements.

3. Importance of Operating Cash Flow

Details: Operating Cash Flow is a key indicator of a company's financial health. Positive OCF suggests the company can fund its operations without external financing, while negative OCF may indicate potential liquidity problems.

4. Using the Calculator

Tips: Enter all values in the same currency unit. EBIT, Depreciation, and Taxes should be positive values. ΔWorking Capital can be positive or negative depending on whether working capital increased or decreased during the period.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between OCF and net income?
A: Net income includes non-cash items and is based on accrual accounting, while OCF focuses on actual cash movements from operations.

Q2: Why add back depreciation in OCF calculation?
A: Depreciation is a non-cash expense that reduces net income but doesn't involve actual cash outflow, so it's added back to reflect true cash position.

Q3: How does working capital affect OCF?
A: Increase in working capital (more tied up in receivables/inventory) reduces OCF, while decrease (freeing up cash) increases OCF.

Q4: What is a good OCF value?
A: Positive and growing OCF is generally good. It should be compared to net income and should ideally exceed net income over time.

Q5: Can OCF be negative for a profitable company?
A: Yes, if the company is growing rapidly and investing heavily in working capital (inventory, receivables), OCF can be negative even with profits.