Operating cash flow measures cash generated by core business operations, adjusting net income for non-cash items (depreciation, stock-based compensation) and changes in working capital. It's the starting point for free cash flow, and harder to distort with accounting choices than net income.
The formula
Net Income+Non-Cash Charges ± Working Capital Changes
= Operating Cash Flow
Why it matters
- —Cash, not accounting profit, is what actually funds dividends, buybacks, and debt paydown.
- —A company can report a healthy net income while operating cash flow lags badly — often a sign profit is tied up in receivables or inventory.
- —Subtract capital expenditure from operating cash flow and you get free cash flow — the figure behind FCF margin.
How to read it
| OCF < Net Income | Profit isn't converting to cash — check working capital |
| OCF ≈ Net Income | Earnings quality looks clean |
| OCF > Net Income | Strong cash conversion — common alongside high depreciation |