Term · Cash Flow & Working Capital
Operating cash flow
In briefOperating cash flow is the cash flow from the actual business operations – before investing and financing activities. For small caps it shows whether the core business already generates real money, independently of financing rounds.
Definition
Cash flow from the actual business operations, excluding investing and financing activities.
How it is calculated
Formula. Operating cash flow = net income +/− non-cash items +/− change in working capital.
Why it matters for small caps
For small caps it shows whether the core business already generates real money – independently of financing rounds.
Common misreadings
- It is equated with net income, although the two can diverge significantly due to non-cash items.
In the process
Frequently asked
What is operating cash flow?
It is the cash flow generated from ongoing operations. Investments and financing are left out of it.
How is operating cash flow determined?
You start from net income and adjust for non-cash items and changes in working capital. The result shows the actual cash inflow from operations.
Why is operating cash flow not the same as profit?
The two can diverge significantly due to non-cash items. A profit without a corresponding cash flow is a warning sign.
Related terms
Sources
Primary
IFRS Foundation – IAS 7 Statement of Cash Flows
https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows.html/
https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows.html/
Methodology
ESMA – Guidelines on Alternative Performance Measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.