smartest-data blog

Operating Cash Flow measures the cash generated by the core business operations and indicates the level of Operating Efficiency.

Operating Cash Flow (OCF) is a key line in the annual Profit and Loss, measures, the cash generated by a Company via its normal business operations. OCF is calculated before considering Interest Expense and changes in Investments. The calculation for OCF does take into consideration changes in Working Capital. Changes in Working Capital can be done in a quick and simple way by the Formula.

WC Changes = Current Assets – Current Liabilities

A more accurate formula is.

WC Changes = Accounts Receivables + Inventory – Accounts Payable

Thus, the core factors in the Cash Conversion Cycle.

Current Shareholders must be aware of this. This could be by either a New Issue of Shares, diluting current Shareholders or via an increase in Leverage, Debt Financing. If there is an increase in Expansion CAPEX, this is likely to require external funding. Further, Dividends are paid out of Net Income, but the Dividend should be covered by OCF, not external Financing or changes in Investments. The level of Dividend Coverage can be calculated by the following formular.

Dividend Coverage = OCF per Share / Dividend per Share.

0 views

Leave a Reply

Your email address will not be published. Required fields are marked *

Warren William

Meet the author behind Smartest-Data. Warren William has a career in Finance and Investments extending over 35 years, both on the Buy Side and Sell Side. His most recent roles include, developing Institutional Risk Management Programs for managing Equity and Fixed Income Risk.  Prior to this Warren William work in Alternative Investments, in Investment Management and as a Buy Side Equity Analyst. Warren William brings a wealth of knowledge and expertise to the table, providing in-depth analysis and commentary on the latest trends in the Stock Markets. Contact information: wwBLOG@smartest-data.blog or Telegram +393339034488

Welcome to
Smartest-Data

Smartest Data aims to be your go-to source for analysis and commentary on Investments, Personal Finance and the Global Stock Markets. The aim is to provide our readers with insightful and actionable information for independent minded Investors.  Dissecting  the daily avalanche of Data produced by the Stocks Market by using data Websites  and Apps available to people at home. Join us, to be Driven by Data to navigate the Investment universe markets and make better informed investment decisions.