What is Operating Cash Flow?

The cash or the money that is produced by the general operations of a company in a given financial period is called operating cash flow. With the help of operating cash flow we can measure the productivity and profitability of a company. Operating cash flow tells us whether a company is in such a position to generate positive cash flow from its general set of operations. This cash flow will help the company to maintain its operating activities in that given period of time. If the operating cash flow produced by a company is enough to run the general operations of a company it will not need any kind of external financing. In order to calculate operating cash flow first of all net income is calculated. After calculating the net income changes in some other accounts such as depreciation account, accounts receivable and inventory accounts are adjusted accordingly to calculate operating cash flow.

Most of the creditors and analysts want to have a look of operating cash flow of the business as provides a very clear and transparent picture of actual operations and their condition in the company. For example fulfilling a large order of product sale will actually boost up the revenue and the profit of the company however if a company don’t have cash to fulfill that order then it won’t help increasing the revenue and boosting the profit of the company. Operating cash flow can be categorized into two categories one is the cash earned from operating customers and the second one is cash paid to the operating suppliers.