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Glossary
Profit & cash

Operating cash flow

Cash generated by the actual day-to-day business, before investment and financing.

It starts with net income and reverses out everything that was an accounting entry rather than money moving: it adds back depreciation, and adjusts for changes in working capital such as inventory and unpaid customer invoices.

If profit is up but operating cash flow is not, one of two things is happening. Either the company is selling to customers who are not paying, or it is building inventory nobody wants. Both are the beginning of a problem.

Figure

The divergence that precedes most disasters

Y1Y2Y3Y4Y5Reported profitOperating cash

Reported profit climbing while the cash it supposedly generated goes nowhere. Either customers are not paying, or the sales were never really made.

Why it matters

Compare it against net income over five years. Persistent divergence has preceded a very large share of accounting scandals.

The mistake everyone makes

Assuming it is the same as profit. Profit is an opinion; this is the closest the accounts come to a fact.

Related terms

Free cash flow
The cash actually left over after the business has paid to keep itself alive.
Working capital
The cash tied up in running the business day to day.
EBITDA
Profit before the four things that make companies look different from one another.

See Operating cash flow on a real company

SteadyShares pulls this straight from the filings for 1,100+ companies, alongside moat scores, DCF fair value and peer comparison. Free to look around.

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