In investing, "Operating Cash Flow (OCF)" refers to the number of firms to generate cash from operations. Here's how to calculate it:
1. OCF is calculated with the equation is relatively simple: EBIT (Earnings Before Interest and Tax) + Depreciation-Tax. EBIT is also known as operating income. This information can be found in corporate annual reports.
2. For this example, we will use "Company's" 2010 annual report. The company reported EBIT (operating income) of $ 190,524, depreciation of $ 20,440, and taxes amounting to $ 70.036. So the math looks like this: $ 190.524 + $ 20.440 - $ 70.036 = $ 140.928. In other words, "Company's" OCF for 2009 is $ 140,928.
3. OCF is a measure of solid corporate profits as referring to actual cash made from the operation and thus difficult to manipulate. A company can bring a lot of money but still have to struggle to pay bills. It's a healthy operating cash flow to prove it does not apply to the "Company".
4. Looking at OCF will show whether the money a company fires more than productive. If you do not want (or do not have time to) check every detail of the finance companies, OCF-both a glimpse of how to do business. Positive CF is a good sign, while negative cash flows need to have a single explanation (or the cost of investment which will not be repeated, for example, acquisitions or new plant). If a company has negative CF for years, or if cash flows continue to decline, this is a warning sign that means you might want to dig deeper before making any kind of investment in the company.
5. In recent years, CF has gained popularity as a financial measure because it is more difficult to manipulate than other metrics, such as income. A company can make profits look bigger by, for example, delays in rebate (which will reduce income) until the next reporting period, thus creating the appearance of a more prosperous business than them. However, due to operating CF associated with actual money, it's much more difficult for companies to "massage the numbers" for management to say what they want to say. This is why such financial metrics, despite the simplicity appears.
1. OCF is calculated with the equation is relatively simple: EBIT (Earnings Before Interest and Tax) + Depreciation-Tax. EBIT is also known as operating income. This information can be found in corporate annual reports.
2. For this example, we will use "Company's" 2010 annual report. The company reported EBIT (operating income) of $ 190,524, depreciation of $ 20,440, and taxes amounting to $ 70.036. So the math looks like this: $ 190.524 + $ 20.440 - $ 70.036 = $ 140.928. In other words, "Company's" OCF for 2009 is $ 140,928.
3. OCF is a measure of solid corporate profits as referring to actual cash made from the operation and thus difficult to manipulate. A company can bring a lot of money but still have to struggle to pay bills. It's a healthy operating cash flow to prove it does not apply to the "Company".
4. Looking at OCF will show whether the money a company fires more than productive. If you do not want (or do not have time to) check every detail of the finance companies, OCF-both a glimpse of how to do business. Positive CF is a good sign, while negative cash flows need to have a single explanation (or the cost of investment which will not be repeated, for example, acquisitions or new plant). If a company has negative CF for years, or if cash flows continue to decline, this is a warning sign that means you might want to dig deeper before making any kind of investment in the company.
5. In recent years, CF has gained popularity as a financial measure because it is more difficult to manipulate than other metrics, such as income. A company can make profits look bigger by, for example, delays in rebate (which will reduce income) until the next reporting period, thus creating the appearance of a more prosperous business than them. However, due to operating CF associated with actual money, it's much more difficult for companies to "massage the numbers" for management to say what they want to say. This is why such financial metrics, despite the simplicity appears.
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