Operating Cash Flow: Measuring Day-to-Day Profitability


In the June DI Monthly, we introduced the statement of cash flows, which shows how much cash a company is generating through operations as well as through changes in company assets, liabilities and equity. This month, we examine the calculations behind cash flow from operating activities, which is a measure of the amount of cash generated by normal business operations through revenues from selling goods and providing services. It excludes activities classified as investing activities or financing activities.

Cash flow from operating activities (also known as operating cash flow or cash flow from operations) has a very simple objective-to show whether a firm’s day-to-day operations generated or depleted cash. If net cash flow from operations is negative, it means that the company is spending more cash than it is generating in producing and selling its goods and services. If it is positive, the company is generating more cash than it is spending on its day-to-day operations.

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