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OCF Calculation - Tutorial, Example

Operating Cash Flow (OCF) is a measure of the amount of cash generated by a company's normal business operations. OCF is important because it indicates whether a company is able to generate sufficient positive cash flow to maintain and grow its operations, or whether it may require external financing. OCF is calculated by adjusting net income for items such as depreciation, changes to accounts receivable and changes in inventory. Learn how to calculate operating cash flow with this tutorial.

How to Calculate Operating Cash Flow?

Formula :

Operating Cash Flow = EBIT + Depreciation - Taxes

Example :

A company ABC has earnings before interest and taxes of Rs 10000000, depreciation of Rs 200000 and taxes of Rs 350000. Calculate its operating cash flow.

Given:

EBIT (earnings before interest and taxes) = Rs 10000000 Depreciation = Rs 200000 Taxes = Rs 350000

Solution

Applying the values in the formula,
OCF = Rs 10000000 + 200000 - 350000 = 9850000 Hence, operating cash flow for the company ABC is Rs 9850000. Thus the above tutorial helps in learning the OCF Calculation with an example.