What does operating cash flow refer to?

Operating cash flow refers to the cash that a company generates from its regular business operations, essentially measuring the cash inflows and outflows associated with the core activities of the business. This includes revenues received from selling goods or services minus any operating expenses, such as costs paid for wages, rent, and supplies.

The significance of operating cash flow lies in its ability to indicate the financial health of a company's ongoing business and its capacity to generate sufficient cash to fund operations, pay debts, and reinvest in the business, without relying on external financing or liquidity from asset sales. Thus, it serves as a reliable measure for investors and stakeholders to assess the performance and sustainability of a company over time.

In contrast, cash generated from investment activities pertains to cash flows related to the buying or selling of physical assets, such as real estate or equipment. Cash from financing activities involves cash flows related to raising funds, such as issuing stocks or bonds, or repaying debt. Lastly, cash generated from asset liquidation is specifically tied to cash received from selling off company assets, which is not a routine part of operating activities but rather an exception. Therefore, the operational aspect of cash flow is what distinctly identifies it in the context of running a business.