The ocf formula is also written out in other ways with different terms. Cash flow from operating activities net income depreciation depletion amortization adjustments to net income changes in accounts receivables changes in liabilities changes in.
Operating cash flow ratio is calculated by dividing the cash flow from operations also called cash flow from operating activities by the closing current liabilities.
Operating cash flow formula. It helps to analyse if a company is capable enough to generate the required amount of cash flow to maintain and expand its existing business operations. The full formula of operating cash flow is as follows ocf net income depreciation stock based compensation deferred tax other non cash items increase in account receivable increase in inventory increase in accounts payable increase in accrued expenses increase in deferred revenue. The detailed operating cash flow formula is.
Operating cash flow net income non cash expenses increase in working capital. Operating cash flow net income depreciation and amortization stock based compensation other operating expenses and income deferred income taxes increase in inventory increase in accounts receivable increase in accounts payable increase in accrued expense increase in unearned revenue. The operating cash flow formula can be calculated two different ways.
Income text non cash expenses text change in working capital the formula above is the short version of the formula for figuring out operating cash flow. Operating cash flow formula ocf net. Ocf net income depreciation change in working capital.
This calculation is simple and accurate but does not give investors much information about the company its operations or the sources of cash. Cash flow from operations using direct method formula 634 000 320 000 125 500 40 000 188 500 calculating cash flow from operations using indirect method calculation of cash flow from operations using the indirect method starts with the net income and adjust it as per the changes in the balance sheet. The long form of the formula is as follows.
Operating cash flow total cash received for sales cash paid for operating expenses. Let s analyze the operating cash flow formula and each of the various components. Operating cash flow or ocf can be simply described as the measure of cash a company generates through its core business operations within a specific time.
Ocf revenue operating expenses depreciation income taxes change in working capital. The first way or the direct method simply subtracts operating expenses from total revenues. Cash flow from operations is reported on a company s statement of cash flows and the current liabilities is presented on a company s balance sheet.