What Is Operating Cash Flow (OCF)?

By QuickBooks Canada Team

1 min read

Operating cash flow is the amount of cash generated by the main activities of a business. It gives you an idea on how well your business is run and if it is profitable from its main activities. The operating cash flow of a retail business is the amount of cash generated by its retail activities. This business may generate cash from other activities, such as renting store space to designers, but the cash generated from these activities doesn’t count toward its operating cash flow. You can calculate operating cash flow using the direct method or the indirect method. To calculate it using the direct method, you subtract the total operating expense from the total revenue. If the total revenue of your business is $200,000 and the total operating expense is $150,000, the operating cash flow is $200,000 – $150,000, or $50,000. To calculate the operating cash flow of your business using the indirect method, you adjust the net income of your business for items that were used to calculate it but didn’t affect cash, such as changes in accounts payable and accounts receivable. Say the net income of your business is $150,000, change in accounts payable is $25,000, and change in accounts receivable is $60,000, the operating cash flow of your business is $150,000 – $60,000 + $25,000, or $115,000. A business with a negative operating cash flow isn’t making money from its operation, and this usually spells trouble. Before you invest in a business, make sure you check its cash flow statement.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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