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Operating Cash Flow

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What is Operating Cash Flow (OCF)?

Operating Cash Flow (OCF) represents the cash generated by a company’s regular operating activities. It’s an indicator of a company’s ability to generate cash from its core operations, without relying on external financing or investments.

In the realm of Professional Service Automation (PSA), understanding OCF is crucial as it provides insights into the financial health of service-based businesses.

Importance of Operating Cash Flow

OCF is a vital metric for businesses, especially in the PSA sector. Here’s why:

1. Liquidity Assessment: OCF indicates if a company can maintain or grow its operations without external financing.

2. Operational Efficiency: A positive OCF suggests that the company’s core business operations are sound and profitable.

3. Investment Potential: Investors often scrutinize OCF to determine a company’s ability to generate consistent cash flow.

4. Strategic Planning: For PSA businesses, understanding OCF can guide decisions related to resource allocation and project financials.

Importance of Operating Cash Flow

Calculating OCF


OCF = Net Income + Depreciation − Changes in Working Capital


Let’s say a PSA company has the following financials:

Net Income: $100,000

Depreciation: $10,000

Changes in Working Capital: -$5,000

OCF = $100,000 + $10,000 – (-$5,000)

OCF = $115,000

This means the company generated an OCF of $115,000 from its core operations.

Operating Cash Flow vs Other Financial Metrics

Understanding these distinctions is crucial, especially when evaluating financial management strategies in PSA. OCF should not be confused with other financial metrics:

1. OCF vs Net Income: While net income includes all revenues and expenses, OCF focuses only on cash transactions related to core operations.

2. OCF vs Free Cash Flow (FCF): FCF is the cash left after deducting capital expenditures from OCF. It indicates the cash available for distribution to stakeholders.

3. OCF vs EBITDA: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a measure of operational profitability, while OCF emphasizes cash generation.

Metric Definition Purpose
Operating Cash Flow (OCF) The cash generated from a company’s core operating activities, such as providing professional services. Indicates the company’s ability to generate cash from its day-to-day operations.
Gross Profit Margin The percentage of revenue retained after accounting for the cost of goods or services sold. Measures the profitability of the core service offerings.
Earnings Before Interest and Taxes (EBIT) The company’s profit before accounting for interest and taxes. Reflects the operating performance, independent of financial structure and tax rates.

Utilizing OCF in Business Operations

OCF plays a pivotal role in:

1. Budgeting and Forecasting: By analyzing OCF, businesses can make informed decisions about resource management and project allocations.

2. Debt Management: Companies with a consistent positive OCF are better positioned to manage debts and reduce reliance on external financing.

3. Investment Decisions: OCF can guide decisions related to business expansion, deal management, and capital investments.

4. Risk Management: Understanding OCF can help in financial risk management, ensuring the company’s sustainability during economic downturns.

Ready to Optimize Your OCF?

KEBS, a leading PSA software, offers tools that can help businesses optimize their OCF:

With KEBS finance management software, businesses can gain insights into their cash flow, enabling better financial planning. KEBS resource management tools ensure optimal utilization of resources, directly influencing OCF.

KEBS project management features allow businesses to streamline operations, ensuring projects are profitable and contribute positively to OCF. By optimizing the sales pipeline and proposal processes, businesses can improve revenue generation, positively impacting OCF.

KEBS Finance Management

Ready to optimize your OCF? Contact KEBS today or request a demo to see how KEBS can transform your financial management processes.

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