Reading the accounts
Operating cash flow
Also called Cash flow from operations or CFO
The cash a company actually generated from running its business.
How it works
It starts from net income and adjusts for non-cash charges and changes in working capital, arriving at the cash the operations really produced.
Comparing it to net income over several years is one of the most valuable checks in fundamental analysis.
Where it misleads people
Operating cash flow persistently below net income suggests profits are being recognised faster than cash arrives. Sustained, it is one of the strongest warning signs available in public accounts.
Related terms
- Cash flow statementThe statement tracking actual cash moving in and out, split into operating, investing and financing.
- Free cash flowCash left over after paying for the investment needed to maintain and grow the business.
- Working capitalThe money tied up in day-to-day operations: inventory and money owed to you, less money you owe.
- Accrual accountingRecording revenue and costs when they are earned or incurred, rather than when cash moves.
- Net incomeWhat is left after every cost, including interest and tax — the profit belonging to shareholders.
More in Reading the accounts
- Operating expenses
- Off-balance-sheet
- Operating income
- Net margin
- Operating leverage
- Operating margin
- Net debt / EBITDA
- Organic growth
All 51 Reading the accounts terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.