Operating cash flow

In financial accounting, operating cash flow (OCF), cash flow provided by operations, cash flow from operating activities (CFO) or free cash flow from operations (FCFO), refers to the amount of cash a company generates from the revenues it brings in, excluding costs associated with long-term investment on capital items or investment in securities.^[1] Operating activities include any spending or sources of cash that’s involved in a company’s day-to-day business activities.^[2] The International Financial Reporting Standards defines operating cash flow as cash generated from operations, less taxation and interest paid, gives rise to operating cash flows.^[3] To calculate cash generated from operations, one must calculate cash generated from customers and cash paid to suppliers. The difference between the two reflects cash generated from operations.

Cash generated from operating customers:

• revenue as reported
• − increase (decrease) in operating trade receivables (1)
• − investment income (Profit on asset Sales, disclosed separately in Investment Cash Flow)
• − other income that is non cash and/or non sales related

Cash paid to operating suppliers:

• costs of sales − Stock Variation = Purchase of goods. (2)
• + all other expenses
• − increase (decrease) in operating trade payables (1)
• − non cash expense items such as depreciation, provisioning, impairments, bad debts, etc.
• − financing expenses (disclosed separately in Finance Cash Flow)

Notes

1. Operating: Variations of Assets Suppliers and Clients accounts will be disclosed in the Financial Cash Flow
2. Cost of Sales = Stock Out for sales. It is Cash Neutral. Cost of Sales − Stock Variation = Stock out − (Stock out − Stock In) = Stock In = Purchase of goods: Cash Out