Cash flow from operating activities. It is the sum of net profit, depreciation, change in accruals, and change in accounts payable; minus change in accounts receivable; minus change in inventories. If consistently larger than profit, it is an indication that a company is building cash reserves or internal investment capacity.
OCF is important as a guide to a company’s ability to sustain or grow its business. A company that plans to seek external financing will need to demonstrate its potential to maintain Strong Operating Cash Flow.
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