Operating Cash Flow (OCF)
Represents cash generated or consumed by normal business operations before capital expenditure and financing.
Formula
OCF = Net Income + Non-Cash Charges +/- Working-Capital Changes
Worked exampleIf net income is $1.0 billion, non-cash charges are $0.7 billion, and working capital uses $0.2 billion, OCF is $1.5 billion.
Calculation steps
- Start with $1.0 billion of net income.
- Add $0.7 billion of non-cash charges.
- Subtract the $0.2 billion working-capital use to get $1.5 billion.
How to interpret it
Positive, recurring OCF supports debt service, investment, and shareholder returns. Compare it with net income to assess earnings quality.
Industry context
Working-capital patterns differ for subscription, retail, construction, and financial businesses, so timing can materially affect OCF.
Common mistakes
- Do not assume one strong working-capital release is recurring.
- Separate operating cash flow from free cash flow.
- Inspect unusual changes in receivables, inventory, and payables.