Operating Cash Flow (OCF) Calculator

Operating Cash Flow Formula:

\[ OCF = EBIT + Depreciation - Taxes - \Delta NWC \]

EBIT (Earnings Before Interest and Taxes):

Depreciation:

Taxes:

Change in Net Working Capital (ΔNWC):

Operating Cash Flow (OCF):

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1. What is Operating Cash Flow?

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 OCF formula:

\[ OCF = EBIT + Depreciation - Taxes - \Delta NWC \]

Where:

\( EBIT \) — Earnings Before Interest and Taxes
\( Depreciation \) — Non-cash expense reducing the value of assets
\( Taxes \) — Taxes paid during the period
\( \Delta NWC \) — Change in Net Working Capital (current assets minus current liabilities)

Explanation: The formula starts with EBIT (operating profit), adds back non-cash expenses (depreciation), subtracts actual cash paid for taxes, 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 can maintain operations without external financing. Investors and creditors closely monitor OCF as it shows the company's ability to generate cash from core business activities.

4. Using the Calculator

Tips: Enter all values in dollars. For ΔNWC, use positive values for increases in working capital (which reduce cash flow) and negative values for decreases (which increase cash flow).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between OCF and net income?
A: Net income includes non-cash items and financing activities, while OCF focuses only on cash generated from operations.

Q2: Why is depreciation added back?
A: Depreciation is a non-cash expense - it reduces taxable income but doesn't actually use cash, so we add it back to EBIT.

Q3: How does ΔNWC affect OCF?
A: Increases in working capital (more receivables or inventory) tie up cash, while decreases release cash.

Q4: What's a good OCF?
A: Positive OCF is essential, and growing OCF over time is ideal. Compare OCF to net income - they should track similarly.

Q5: Can OCF be negative?
A: Yes, especially for growing companies investing heavily in working capital, but sustained negative OCF is concerning.