Financial Glossary
Operating cash flow
Operating cash flow (OCF) is the net cash generated by a company's core business operations during a period, reported on the cash flow statement under the direct or indirect method. Under the indirect method: OCF = Net Income plus non-cash charges (depreciation, amortization) plus or minus changes in working capital (receivables, payables, inventory, deferred revenue). OCF differs from operating income (which is accrual-based) because it captures actual cash timing -- a company can report positive operating income while burning cash if receivables are growing faster than collections. OCF is sometimes called cash from operations and is the most conservative measure of a business's ability to sustain itself without external financing.
Problem & Application
A marina reports net income of $150,000 for the year. Adding back $60,000 in depreciation on docks and equipment yields $210,000 before working capital changes. During the year the marina extended payment terms to a large commercial account, so receivables increased by $40,000 (a use of cash), but prepaid slip fees from seasonal customers increased by $25,000 in deferred revenue (a source of cash). OCF = $210,000 - $40,000 + $25,000 = $195,000. This $195,000 is available to service debt, pay owner distributions, or fund capital expenditures without needing to borrow. Lenders and acquirers often use OCF rather than net income to assess true debt-service capacity, particularly in asset-heavy hospitality businesses where depreciation is large relative to income.
In Short
Operating cash flow is a critical indicator of financial health, showing whether a company can fund its operations without relying on external sources of cash.