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What is the operating cash flow


What is the operating cash flow

Step 1

Operating cash flow is also known as cash flow from operations or Cash flow from operating activities.


Step 2

Thus operating cash flow means:

  1. Cash flows arising out of transactions that involve the firm’s primary activities. This includes the main route by which any company intends to make profits.  It includes the day to day business functions of a company.
    1. Example of inflows: Collection from Debtors / Cash Sales, Proceeds from sale of trading securities, Tax refund;
    2. Example of outflows: Payment to suppliers, Payment for other expenses, Purchase of trading securities, Taxes paid (in relation to any transaction).
  2. This includes any cash flow from incidental transactions also (scrap sales for a manufacturing company).
  3. Interest expense is considered to be part of operating activities. 
  4. Operating cash flow excludes non-cash items such as depreciation, amortization, impairment, deferred payments etc.
Step 3

Mathematically, Operating cash flows is calculated by the following equation:

Operating cash flows=  Cash flow from...

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