Operating cash flows

Operating cash flow is the cash that flows in and out due to the daily operations of a company that generate revenues, sell inventory, provide services, and other activities not classified as investing or financing cash flow.


Cash sales, collection of credit sales contribute to operating cash inflows. Cash receipts from the provision of services, royalties, and commissions are included in operating cash inflows.

Operating cash outflows include cash payments for purchasing raw materials from supplier for manufacturing s, payment of salaries to employees, taxes and other operations-related expenses and accounts payable.

Cash receipts and payments from trading in securities are also part of operational cash flow.

Below is a pictorial illustration of how operating cash flows may look in the cash flow statement of the company:-

(for illustrative purposes only)

Source: Tavaga Research 

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Operating cash flow is a useful measure for fundamental analysis as it reveals the cash generated organically by the enterprise from its core business (and not borrowed from other sources). The more positive operating cash flow (inflow greater than outflow), the higher the valuation of the company.