Operating cash flow: Difference between revisions

Revision as of 22:42, 4 February 2010

Revision as of 01:12, 5 February 2010

Line 22:

Since it adjusts for liabilities, receivables, and depreciation, operating cash flow is a more accurate measure of how much cash a company has generated (or used) than traditional measures of profitability such as [[net income]] or [[Earnings before interest and taxes|EBIT]]. For example, a company with numerous fixed assets on its books (e.g. factories, machinery, etc.) would likely have decreased [[net income]] due to [[depreciation]]; however, as depreciation is a non-cash expense<ref>[[wikinvest:depreciation|Definition of depreciation via Wikinvest]]</ref> the operating cash flow would provide a more accurate picture of the company's current cash holdings than the artificially low net income.<ref>[[wikinvest:Operating Cash Flow|Definition of OCF via Wikinvest]]</ref>

EpenisarningsEarnings before interest, taxes, depreciation and amortization (EBITDA) is a non-GAAP metric that can be used to evaluate a company's profitability based on net working capital. The difference between EBITDA and OCF would then reflect how the entity finances its net working capital in the short term. OCF is not a measure of free cash flow and the effect of investment activities would need to be considered to arrive at the free cash flow of the entity.

== See also ==