Understanding your company’s financial health is crucial for sustainable growth. Our operating cash flow (OCF) calculator is a valuable tool in this process.

By using this calculator, you can gauge the cash generated from your regular business operations, independent of external financing and capital expenditures. 

Keep reading to discover how to use the operating cash flow calculator. You’ll also learn why cash flow is important, how to calculate operating cash flow, and other details about our cash flow calculator.

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How to Use the Operating Cash Flow Calculator

You’ll need your net income statement and balance sheet to calculate your operating cash flow using the operating cash flow calculator. To use the operating cash flow formula, you’ll need to add the following information:

• Net income
• Depreciation
• Amortization
• Change in inventories
• Change in accounts receivable
• Change in accounts payable
• Income tax payable
• Net of other cash flows

Once you input this information into the operating cash flow calculator and push calculate, we’ll provide the change in net working capital and the operating cash flow.

Let’s look at each of these to help you understand them better.

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Net Income

Net Income is the amount of money you earn after all operating expenses, depreciation, amortization, and taxes. It’s the bottom number in the net income statement. 

Many businesses aim to have a slightly negative net income with a positive cash flow. This way, the business is consistently growing in value, but they aren’t paying as much in taxes.

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Depreciation

Depreciation measures the expected decline in physical assets. It’s a non-cash expense that reduces your net income but not your net operating cash flow. The calculator adds the depreciation value to your net income.

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Amortization

Amortization lowers the book value of your intangible assets. These expenses are spread over a set period of time. Software, patents, and trademarks fall into this category.

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Change in Inventories

Holding more inventory at the end of the period decreases cash flow because money has been paid for items sitting in inventory. Likewise, reduced inventory on hand will normally result in a higher operating cash flow. 

You may add or subtract this from the net income depending on whether you have more or less inventory that has been purchased.

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Change in Accounts Receivable

Increased accounts receivables may be both a positive and negative indicator for operating cash flow. Higher accounts receivable mean that you haven’t been paid for a product or service but are still owed that money. 

This could indicate sales growth or a risk of customers not paying their bills. An increase in accounts receivable adds to operating cash flow.

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Change in Accounts Payable

Increases in accounts payable normally improves your operating cash flow because the payments have to go out at a later time. An increase in accounts payable adds to operating cash flow.

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Income Tax Payable 

The amount of income tax that you need to pay in the future adds to the company operating cash flow.

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Net of Other Cash Flows

This is a catchall term for miscellaneous cash flows that may impact operating cash flow.

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What Is Operating Cash Flow?

Operating cash flow is the amount of money a company makes from normal business operations during a set period of time. Operating cash flow shows whether a company is making enough money to cover expenses without external financing. 

OCF is different from net income, which is the total income a company generates from sales, minus total expenses. A company’s operating cash flow is the first section on a cash flow statement, followed by cash flow from investing and borrowing.

Note that capital expenditures and investing and financing activities aren’t included in operating cash flow.

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How to Calculate Operating Cash Flow

There are several ways to calculate operating cash flow. When working from a net income statement, OCF is calculated by adding net income and non-cash expenses, then subtracting the net increase in working capital. Here are the formulas for calculating OCF:

OCF = total cash received for sales – cash paid for operating expenses
OCF = (revenue – operating expenses) + depreciation – income taxes – change in working capital
OCF = net income + depreciation – change in working capital 

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Operating Cash Flow Formula

There are multiple operating cash flow formulas that incorporate different metrics:

OCF = total cash received for sales – cash paid for operating expenses
OCF = (revenue – operating expenses) + depreciation – income taxes – change in working capital
OCF = net income + depreciation – change in working capital 

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The Purpose of Operating Cash Flow

Operating cash flow helps you understand a company’s performance based on its operations. When you have positive operating cash flow, that means the company made enough money during a given period to cover its operating expenses. 

With higher operating cash flow, a company can grow without requiring external funding. Meanwhile, negative cash flow means that the company may need external financing in the future to avoid defaulting on debts or going bankrupt.

When operating cash flow is positive, but net income is negative, that means the loss is from depreciation or an increase in working capital.

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Cash Flow FAQs

Let’s review some frequently asked questions about OCF and other ways to analyze your business’s financial health.

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How to embed our calculator

To embed our operating cash flow calculator, follow the steps below:

1. Click on the embed symbol at the bottom right of the calculator.
2. Copy the iframe.
3. Go to your website.
4. Add it to the page.
5. Share the tool with your customers. 

Check out our other calculators to increase the free tools on your website.

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What are operating activities in cash flow?

Operating activities include:

• Cash from sales
• Accounts receivables collected
• Receipt or payment of interest
• Purchase of supplies and materials
• Wages 
• Principal and interest on operating leases (excluding capital leases)
• Payments for licenses, fines, and taxes 
• Everything that isn’t part of an investing and financing activity

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What is a good operating cash flow ratio?

The formula for operating cash flow ratio divides your operating cash flow by your liabilities. A ratio above 1.0 means that your business is able to continue your routine operating activities. 

Meanwhile, when the free cash flow ratio is above 10, you aren’t deploying your cash successfully. You should find ways to invest it instead of stockpiling cash that will decrease in value from inflation.

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What is the difference between operating cash flow and free cash flow?

Operating cash flow doesn’t include capital expenditures, while free cash flow does. We also offer a free cash flow calculator.

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What is OCF in finance?

OCF is short for operating cash flow. This financial metric measures how much cash a company has from its core business activities. It indicates whether the company can maintain and grow operations without seeking financing.