Operating cash flow
Also called Cash from operations, CFO.
The cash the core business actually produced, with the accounting adjustments taken back out.
Operating cash flow = net income
+ depreciation, amortisation and other non-cash charges
+/- the change in working capitalWhat it means
Operating cash flow starts at net income and undoes the parts of it that were never cash. Depreciation is added back because no money left the building; a rise in unpaid customer invoices is subtracted because the sale was booked and the cash was not received.
What remains is the money the business itself generated before deciding what to spend it on. It is much harder to flatter than profit, which is why a persistent gap between the two is one of the more reliable warnings available to a reader.
Worked example
Net income of $150m, with $80m of depreciation and amortisation added back.
- 1Start from $150m of net income.
- 2Add back $80m of non-cash charges.
- 3Working capital movements make up the rest.
$250m of operating cash flow, well above the $150m of reported profit.
Every example in this glossary describes the same imaginary company, so the figures join up as you move between metrics.
How investors read it
- Over five years it should broadly track profit. Cash below profit year after year usually means revenue is being recognised ahead of collection.
- A single weak year is often just working capital — a stock build before a launch, or a large customer paying late.
- It sits above capital spending, so a business can produce plenty of operating cash and still have nothing left for its owners.
Where it misleads
- Stock-based compensation is added back as non-cash even though it is a genuine cost paid in ownership.
- Working capital swings can flatter or punish a single year without anything about the business changing.
- Where interest and tax paid sit within the statement varies, which makes cross-border comparison less clean than it looks.
How Materiality uses it
A statement line, and the starting point of free cash flow, which in turn starts the intrinsic value model. One detail matters for reading the quarterly view: a 10-Q reports cash flow cumulatively from the start of the fiscal year, not for the quarter alone, so a discrete quarter here is a subtraction of one filing from another rather than a figure any filing states. Those cells are labelled as derived and carry no filing reference, because pointing at either filing would name a document that does not contain the number.
The full methodology covers where the figures come from, how the statements are normalised, and what is deliberately left unadjusted.
Work it out yourself
Related metrics
Free cash flow
Operating cash flow less capital expenditure: what the business actually generated for its owners.
Capital expenditure
Cash spent on the physical assets the business runs on.
Net income
What is left of revenue once every cost, including tax, has been taken off.
EBITDA
Operating profit with depreciation and amortisation added back.
A metric on its own is a number without a business attached to it. Materialitycomputes these from a company's own SEC filings, several years of them at once, and explains what the pattern means rather than leaving you to hold fifteen definitions in your head.