1. What is Operating Cash Flow (OCF)?

Operating Cash Flow (OCF) is the cash generated from the normal operations of a business. 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 standard OCF formula:

Where:

• \( EBIT \) — Earnings Before Interest and Taxes
• \( Depreciation \) — Non-cash expense for asset depreciation
• \( Taxes \) — Cash taxes paid
• \( \Delta NWC \) — Change in Net Working Capital (current assets minus current liabilities)

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

3. Importance of OCF Calculation

Details: OCF is a key indicator of financial health. Positive OCF means the company's core operations are generating sufficient cash to sustain the business. Investors and creditors closely monitor OCF as it shows the company's ability to meet obligations, reinvest, pay dividends, and fund growth.

4. Using the Calculator

Tips: Enter all values in the same currency unit. EBIT and depreciation are typically positive values, while taxes and ΔNWC can be positive or negative depending on the situation. A positive ΔNWC indicates cash outflow (investment in working capital), while negative ΔNWC indicates cash inflow.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between OCF and net income?
A: OCF focuses on actual cash generated, while net income includes non-cash items and follows accrual accounting principles.

Q2: Why add back depreciation if it's an expense?
A: Depreciation is a non-cash expense - it reduces taxable income but doesn't involve actual cash outflow.

Q3: How does ΔNWC affect cash flow?
A: Increasing working capital (e.g., more inventory or accounts receivable) ties up cash, while decreasing it releases cash.

Q4: Can OCF be negative?
A: Yes, negative OCF means operations are consuming rather than generating cash, which may be problematic unless temporary.

Q5: What's a good OCF?
A: Healthy companies typically show OCF that exceeds net income and grows over time. Compare to industry benchmarks.