Businesses usually aim to keep a positive cash flow, as this allows a company to meet its financial obligations, stay in business and take advantage of business opportunities. A positive cash flow indicates more cash at the end of a specified period, while a negative cash flow represents less cash at the end of a period. Hence, cash flow can be positive or negative. You can calculate cash flow by subtracting the cash balance at the beginning of an accounting period from the balance at the end of the period. This, in turn, determines the level of freedom a business has in its decisions and policies. the amount of money a company has to run its business. It shows the company's liquidity position, i.e. Cash flow is an important metric in running a business.
The term cash flow broadly refers to the amount of cash or its equivalent that a company generates or uses up within a given period. Payroll for employees' wages and cash bonuses Revenue accrued from sales of goods or servicesĬommission on sales of goods for other business entities It also shows the costs incurred in running a business and how much revenue the company's business activities generate.Īctivities that contribute to the OCF include: It represents the amount of cash available for carrying out the essential business activities of an enterprise. Operating cash flow is the amount of cash a company generates through its core business activities for a given period. In this article, we explore the meaning of OCF, the types of cash flow and other useful information to help you understand the topic. Learning what this term means and calculating it can help you to determine if a business is making enough profit to keep the operations running smoothly. The ability to accomplish this and keep running at all times underscores the value of the operating cash flow (OCF).
For a company to keep performing its core activities in production or sales, goods or services, it's important that it maintains enough liquidity to pay suppliers, employees and rent.
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