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What are Operating cash flow in accounting?
Operating cash flow is the money generated by a firm to perform its regular operations in a specific period of time. It tells about the operational health of the firm. If a firm generates positive cash flow, it means that the firm can’t remain solvent in long run. If the firm generates negative cash flows, it should have some financial support to meet the needs or to raise its additional capital.
Formula
Operating cash flow = operating income + depreciation – taxes (+/-) change on working capital
Operating income = revenue – cost of sales
Purpose of operating cash flow is explained below −
- To meet its operating expenses.
- Provide capital for future.
- Meet entity’s interest and debt requirements to pay dividends.
Examples
The examples are given below −
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