Operating cash flow

Operating cash flow is the cash a business generates from its core operations after working-capital changes but before capital expenditures. It starts from net income, adds back non-cash items (depreciation, amortization, stock-based compensation, deferred taxes), and adjusts for working-capital changes (increases in receivables and inventory subtract; increases in payables add). OCF is the foundation of free cash flow (FCF = OCF − Capex) and the cleanest snapshot of operating-cash generation. We watch OCF for two diagnostics. First, OCF/NI conversion: a multi-year trend below 0.8 triggers our quality gate. Second, the sources of OCF: a company whose OCF is dominated by working-capital release (declining receivables, declining inventory) is harvesting balance-sheet capital rather than generating operating cash, which is sustainable in moderation but unsustainable as a growth strategy.