| Definition |
Cash generated by the business after accounting for capital expenditures needed to maintain or expand assets. |
Cash generated from a company’s core business operations, excluding financing and investing activities. |
| Calculation Basis |
Operating Cash Flow minus Capital Expenditures (CapEx). |
Net income adjusted for non-cash items and changes in working capital. |
| Purpose |
Measures the cash available for distribution to shareholders, debt repayment, or reinvestment. |
Indicates the company’s ability to generate cash from its regular business activities. |
| Includes |
Cash from operations minus investments in property, plant, and equipment (CapEx). |
Cash receipts from sales minus cash paid for operating expenses. |
| Excludes |
Capital expenditures and cash flows from investing or financing activities. |
Cash flows from investing and financing activities like loans, dividends, or asset sales. |
| Indicator of |
Company’s true cash profitability and financial flexibility. |
Operational efficiency and cash generation capability. |
| Significance for Investors |
Helps assess how much cash is left for expansion, dividends, debt reduction, or buybacks. |
Shows whether the core business generates sufficient cash to sustain operations. |
| Volatility |
Can be more volatile due to fluctuations in capital expenditures. |
Generally more stable as it focuses on operating activities only. |
| Relation to Profit |
May differ significantly from net income due to CapEx adjustments. |
Often closer to net income after non-cash adjustments. |
| Use in Valuation |
Widely used in discounted cash flow (DCF) valuation models. |
Used to analyze operating performance and cash health but less in valuation. |
| Financial Statement Location |
Derived from cash flow statement, requires CapEx data from investing activities. |
Reported directly in the cash flow statement under operating activities. |
| Example |
If Operating Cash Flow is $500K and CapEx is $200K, Free Cash Flow is $300K. |
If Net Income is $400K and after adjustments Operating Cash Flow is $500K. |
Free Cash Flow vs Operating Cash Flow