Operating cash flow

Operating Cash Flow

The cash generated or consumed by a company’s core business activities, representing the net cash flow from selling products or services, paying suppliers, compensating employees, and covering other operating expenses.

For instance, a software company might report quarterly operating cash flow of $2 million, derived from $5 million in customer payments, offset by $2 million in salaries, $500,000 in rent and utilities, and $500,000 in other operating expenses.

Operating cash flow appears in the first section of the statement of cash flows and differs from net income due to non-cash expenses (like depreciation), timing differences in revenue and expense recognition, and changes in working capital. Strong, positive operating cash flow indicates a company can sustain operations, invest in growth, service debt, and distribute dividends without external financing, making it a critical metric for assessing financial health.