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.

2. How is OCF Calculated?

The calculator uses the standard OCF formula:

Where:

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

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

3. Importance of Operating Cash Flow

Details: OCF is a key indicator of financial health, showing the cash a company generates from core operations. It's used by investors to assess a company's ability to pay debts, reinvest, and provide returns to shareholders.

4. Using the Calculator

Tips: Enter all values in dollars. EBIT and depreciation are typically positive values, while taxes and ΔNWC can be positive or negative depending on the situation.

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 accrual accounting adjustments.

Q2: Why add back depreciation?
A: Depreciation is a non-cash expense that reduces taxable income but doesn't represent actual cash outflow.

Q3: How does ΔNWC affect OCF?
A: An increase in NWC (positive ΔNWC) reduces OCF as cash is tied up in operations, while a decrease (negative ΔNWC) increases OCF.

Q4: What's a good OCF?
A: Positive OCF is generally good, but it should be compared to industry peers and analyzed in context of capital expenditures.

Q5: Can OCF be negative?
A: Yes, negative OCF means a company is spending more cash than it generates from operations, which may be problematic if sustained.