Emergic: Rajesh Jain's Blog

Emergic: Rajesh Jain's Blog header image 2

Operating Cash Flow

May 26th, 2007 · No Comments

Matt McCall writes:

Cash is the life’s blood of any company. It comes from either the company’s operations or from raising capital. There are a number of definitions of cash flow. I prefer to focus on what the core operating business is generating or burning net of any financing activity. As a result, I look at Operating Cash Flow minus Cap-X. A gross generalization of this includes (apologies to all of my accounting & finance profs):

Net Income: plus depreciation, amortization and other non-cash cash income statement items, minus working capital needs, minus core, recurring capital expenditures (exclude large one time charges)

Since both working capital and cap-x can vary significantly monthly, you should average across a period of time that smooths out the swings such as the average monthly cash flow for a 3 or 6 month period. You should also understand how this changes as your business ramps since it will impact your financing needs.

Tags: Management

0 responses so far ↓

  • There are no comments yet...Kick things off by filling out the form below.

Leave a Comment