Operativer Cashflow: Formel, Beispiele und Analyse

Your organization’s accounting processes seem full of never-ending metrics. From statements to reports to analyses, there’s always a mountain of data needed for proper record-keeping and compliance.

Operating cash flow is a key part of routine reporting. However, with different methods, formulas, and ratios to research, it can be a daunting topic. Luckily, there’s a way to break everything down, so you and your team are ready to make your calculations. Let’s get into it.

What is operating cash flow (OCF)?

Before we get into the details, let’s define what operating cash flow is.

Operating cash flow (OCF) is a calculation of how much cash an organization brings in from its operating activities over a certain period. OCF includes cash coming in and out from daily operations and does not include income or expenses outside of the core business (e.g., money from investments or interest on cash holdings). Alternatively, it may be referred to as “cash from operating activities” or “OCF”.

OCF calculation is often confused with other accounting processes. Let’s clear up some important differences here.

Operating cash flow vs. net income vs. earnings per share

OCF is calculated by subtracting operating costs from revenue, whereas net income and earnings per share are different. Net income is income minus the taxes, expenses, and cost of goods sold (COGS). Earnings per share is a metric used to represent an organization’s profitability, calculated by dividing net income by the number of outstanding shares in that company.

Operating cash flow vs. free cash flow

OCF is cash generated by business operations, whereas free cash flow is the cash an organization brings in from business operations after subtracting capital expenditures.

Operating cash flow vs. EBIT vs. EBITDA

EBIT is an organization’s net income before taxes and interest are subtracted. In addition to EBIT, EBITDA also subtracts depreciation and amortization. Of the two, people often opt for EBITDA for a more accurate net income picture. OCF, of course only includes operating income, whereas EBIT and EBITDA include non-operating income.

Operating cash flow formula

Now that you understand what OCF is, and how it differs from other common calculations, let’s cover how you can calculate it.

The long-form formula is, as follows:

Net Income + Depreciation & Amortization + Stock-Based Compensation + Deferred Tax + Other Non-Cash Items – Increase in Accounts Receivable – Increase in Inventory + Increase in Accounts Payable + Increase in Accrued Expenses + Increase in Deferred Revenue = OCF

Sometimes, the long-form formula is shortened depending on the applicable types of expenses and income streams for your business. The formula is also changed depending on whether you use the indirect or direct method for execution.

Important elements in the operating cash flow formula

Take note of the following key elements of the OCF formula.

• Net income: Calculated as earnings (revenue) minus interest, expenses, and taxes.
• Non-cash expenses: Non-cash expenses may look different between organizations, but the most common examples include amortization, depreciation, unrealized losses, unrealized gains, deferred income taxes, goodwill impairments, asset write-downs, and provisions and contingencies for future losses.
• Non-cash working capital: also referred to as NCWC, is the capital an organization uses to fund its business operations. This excludes any liquid cash. NCWC is not cash but may be converted to cash easily, like accounts receivables.

Indirect method

When using the formula to reach your OCF calculation, you can use an indirect or a direct method for calculating cash flow.

The indirect method tracks net income on an accrual basis. It then adds or subtracts non-cash items to balance to the operating cash flows. This formula looks like this:

OCF = net income + depreciation and amortization - net working capital

This is the more detailed method, and the breakdown could appear in separate lines of the table like this:

• Net income = A
• Depreciation = B
• Increase in accounts receivables = C
• Decrease in accounts payable = D
• OCF = E

Direct method

The direct method, of course, has a more straightforward formula. During the accounting period, an organization converts all transactions to a cash basis and uses actual cash outflows and inflows. The formula for the direct method looks like this:

OCF = cash revenue - cash operating expenses

It’s important to note, that for the direct method, your organization must perform a separate reconciliation in addition to the formula calculation.

Indirect vs. direct method

When deciding which formula your company should use, there are a few things to consider.

The indirect method doesn’t dive into the details of actual cash transactions, instead using figures based on accrual. That makes it faster—since you won’t need to crawl through dozens of receipts—but lacking in fine detail. It can also make future adjustments necessary in situations where actual cash flow doesn’t match the count in your accrual accounts.

The direct method involves going through actual cash flow, meaning tracking individual transactions and receipts. For small businesses, this is usually the preferred method of calculating cash flow, since it gives business owners a more thorough understanding of their financial situation—and the number of transactions they have to go through is still manageable. For larger organizations, this method isn’t scalable.

What is an operating cash flow ratio?

An operating cash flow ratio measures how much of an organization’s liabilities can be paid off with operating cash. Like the operating cash flow definition, there are a few terms to define here.

Operating cash flow ratio vs. quick ratio vs. current ratio

Like the OCF ratio, a quick ratio and a current ratio also measure an organization’s ability to pay off its liabilities. A quick ratio divides cash equivalents and cash by current liabilities, and a current ratio divides current assets by current liabilities.

Einschränkungen

Each ratio only captures a specific snapshot of a company’s financial health. The main limitation of the OCF ratio is that it needs to be used in tandem with other ratios for a proper financial analysis.

Additionally, the OCF ratio is easy to manipulate. Because of this, and because the ratio uses only operating cash, an inflated or deflated OCF could give a misleading picture of financial standing to an analyst or investor.

Why is operating cash flow important?

For in-house analysts

Operating cash flow is an important indicator of whether or not your company’s day-to-day cash can cover your business expenses. If you have a healthy OCF, it could be a sign for an in-house analyst that the company is in comfortable standing. However, if the OCF score is low, it could signify to the analyst that the company needs to seek an additional revenue source or limit its expenses.

Für Anleger

Investors need to take into account all angles of an organization’s finances when evaluating a new partnership. While OCF is just the operational picture, it’s a crucial metric to report on to understand short-term financial health.

For lenders

In some cases, a low OCF score doesn’t necessarily mean the organization as a whole is in bad financial standing. The company could have an additional non-operating revenue source keeping things afloat. That stronger revenue source, reported in addition to the low OCF score, could indicate to a lender that a relationship is a safe bet.

Indirect method operating cash flow formula example

Before we jump into the indirect method example, let’s first look at an example of a consolidated cash flow statement.

A consolidated cash flow statement is a great place to start with your operating cash flow formula. This statement will have a section dedicated to your operating costs. Here’s a sample of the operations expenses section in a statement from PWC.

From here, we can retrieve the data that would be used for their indirect method formula.

A simple example of a completed operating cash flow statement using the indirect method is this one from Amazon. You can see that the financial period is laid out, and the lines are broken down into items like cost of sales, fulfillment, administrative, and more.

Of course, before and after the table itself, there are detailed notes given to share full context around the categories, figures, and calculations.

Direct method operating cash flow formula example

The direct method, as discussed earlier, is a much more straightforward method of conducting your operating cash flow statement, as it only reports in cash or cash equivalencies. Here’s a fictitious example from Investopedia.

While this method looks cleaner and perhaps more digestible, the lack of granularity makes it less suitable for presenting to investors or lenders.

Discussion: When is it best to use the indirect method vs. the direct method?

There are pros and cons to both the direct and indirect methods of OCF calculation. Though one method might be more suitable for regular use, you could use both methods at different times.

The indirect method: Arguably, this method takes less effort to calculate as data collection is made easy by sourcing from similar reports. It’s a more common method across the board, as it gives stakeholders and investors the data they need without requiring weeks of going through cash transactions.

The direct method: This method has a reputation for being more accurate because of its straightforwardness, but significant additional work is required for this accuracy. This method would be great for internal reporting, to give your in-house analysts a more detailed picture of the cash-specific OCF calculation.

Sync up with your accounting team, and identify which method works for you based on how your data is collected, and what purpose your OCF serves.

Discussion: Working capital items, CapEx, and operating cash flow

Working capital items and CapEx work with OCF to contribute to a larger financial picture. Let’s break these terms down.

• Working capital is the monetary difference between a company’s assets and liabilities, reported on a balance sheet. Working capital is a way to measure short-term financial standing and a business’s liquidity.
• CapEx, or capital expenditure, is money used to gain or upkeep a company’s physical assets like buildings, equipment, or property. CapEx payments are important for a company’s growth, as it enables them to invest in new technology, equipment, and other assets.

By studying the OCF formula, you can map and identify how all three of these accounting concepts impact each other. For example, let’s say a business purchased a fixed asset like a real estate property.

This CapEx purchase will increase the scope of the business’s operations. This purchase would also reduce operating cash flow, which also reduces the working capital as the cash in current assets decreases.

By understanding how working capital, CapEx, and OCF affect each other, you can parse your OCF formula and identify how to diagnose and resolve financial issues beyond your operating cash flow.

Discussion: the operating cash flow formula in financial modeling

Financial modeling is the representation of a business’s operations in the future, present, and past in numbers. It details all expenses and incomes, and financial modeling is reported in a spreadsheet to identify patterns and forecast for the future. But how big of a role does the OCF formula play?

OCF measures how much on-hand cash a business has for daily operations. While daily operations aren’t the whole picture, the OCF ratio is typically a strong indicator of short-term financial health. But how do you incorporate OCF into your financial modeling?

OCF balancing and best practices: Preparation can be broken down into a few simple steps.

• Refer to your other related finance documents. Documents like balance sheets and P&L statements are going to be handy to gather the figures for your OCF formula.
• Break down your sections into detailed line items. Sections of your OCF like equity and net income should be separated into different applicable lines, for a cleaner report.
• Convert this detailed sheet into a full OCF statement by choosing an execution method and comparing the data over multiple periods. Presenting the difference in growth or decline in each line item year over year, for example, will give stakeholders an idea of the predicted fiscal trajectory.

Focus for startups: Financial modeling often ends up being a low priority for startups. It can seem like a tedious task for a business just getting its bearings. That said, here’s why a startup should consider reporting on OCF in their financial modeling:

• Constructing, validating, and forecasting your business model is important. Having the numbers available to back up your plan will go a long way to ensuring growth and building credibility with potential investors.
• It’s key for fundraising. Investors want to see patterns, trends, and the hard numbers representing your startup’s financial health, before they consider establishing (or maintaining) a relationship with you.
• You need financial modeling to establish targets and to measure growth. Financial modeling is important for founders, to identify trends, benchmark, and make decisions that help them scale.

To put OCF in financial modeling into perspective, let’s look at this example from Indeed.

This table lists operating activities, as well as changes in operating assets and liabilities. The year-over-year details are integral to financial modeling and forecasting for future financial periods.

FAQs about the operating cash flow formula

How do you calculate operating cash flow?

There are multiple ways to calculate operating cash flow. The long-form formula is:

Net Income + Depreciation & Amortization + Stock-Based Compensation + Deferred Tax + Other Non-Cash Items – Increase in Accounts Receivable – Increase in Inventory + Increase in Accounts Payable + Increase in Accrued Expenses + Increase in Deferred Revenue.

Some organizations use a consolidated version of the formula, depending on the applicable categories to their business. Other financial statements like a statement of cash flow will aid in preparing the data used in your formula.

In order to use the formula for your calculation, you could use the indirect method or direct method for calculating cash flow. The indirect method is more popular since it doesn’t require as much work as the direct method.

What is a good operating cash flow ratio?

If an organization's operating cash flow ratio is less than 1, it’s an indicator of short-term cash flow issues. If the ratio is greater than one, it’s generally a good sign of strong cash flow and financial health, at least in the short term.

What other metrics should I track along with operating cash flow?

Because OCF only covers a portion of financial reporting, other metrics companies track in tandem could include:

• Accounts receivable turnover (ART) & accounts payable turnover (APT).
• Free cash flow (FCF).
• Current ratio.
• Cash conversion cycle (CCC).
• Cash flow coverage ratio (CFCR).
• Daily sales outstanding (DSO).
• Daily payable outstanding (DPO).

Conclusion: Operating cash flow and financial reporting

Your company’s operating cash flow is an important part of the overall picture of its financial situation. Investors, lenders, in-house analysts, and other stakeholders use this calculation to make integral business decisions.

Understanding the OCF ratio is crucial for proper reporting. Making a plan to use the right formula and deciding between an indirect or direct method of execution is also a part of the process.

Learn more about how Prophix One can help you project and analyze your cash flows with confidence.