Operating cash flow (OCF) refers to the cash generated by a company’s core business operations over a specific period. It measures the cash inflows and outflows directly related to the production and sale of goods or services, excluding financing and investing activities.
How is operating cash flow calculated?
OCF = Net Income + Non-Cash Expenses (e.g., Depreciation) – Changes in Working Capital For example, if a startup has a net income of €50,000, depreciation of €10,000, and an increase in working capital of €5,000: OCF = €50,000 + €10,000 – €5,000 = €55,000 This means the startup has €55,000 in cash from its operating activities.
Why is operating cash flow important for startups?
Operating cash flow is crucial for startups because it indicates whether the business generates enough cash to cover its operational expenses. Positive OCF shows that the startup can sustain itself without relying on external funding, while negative OCF signals potential financial challenges that may require adjustments in operations or additional investment.
What factors can impact operating cash flow?
Factors that can affect OCF include changes in revenue, cost of goods sold, operating expenses, and working capital (such as accounts receivable, accounts payable, and inventory levels). External factors like market demand and economic conditions can also influence a startup’s cash flow from operations.
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