Operating cash flow
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In financial accounting, operating cash flow (OCF), cash flow provided by operations or cash flow from operating activities, refers to the amount of cash a company generates from the revenues it brings in, excluding costs associated with long-term investment on capital items or investment in securities.[1]
Operating cash flow = Earnings before interest and taxes + Depreciation - Taxes[2]
EBIT is "all profits before taking into account interest payments and income taxes."[3]
Depreciation is a non-cash expense, and taxes must be paid in cash. Thus, the "pure" cash from operations is OCF as described. OCF is identified by FASB.
Operating Cash Flow Margin reflects the company’s profitability. It shows how much a company makes out of the revenues it brings in. The higher the percentage, the more profitable a company is.[citation needed]
[edit] References
- ^ Ross, Stephen, Randolf Westerfield and Bradford Jordan Fundamentals of Corporate Finance
- ^ Investopedia definition of Operating Cash Flow Accessed 1 April 2007.
- ^ Investopedia definition of EBIT Accessed 1 April 2007.
[edit] See also
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