Using the indirect method, compute operating cash flow from net income, non-cash expenses, and the change in working capital.
Input Data
Results
At a glance:Operating cash flow under the indirect method starts from net income, adds back non-cash expenses, and adjusts for the change in working capital.
Formula
operatingCashFlow = netIncomeAmount + nonCashExpenses − increaseInWorkingCapital
$$\\text{OCF} = \\text{Net Income} + \\text{Non-Cash Expenses} - \\Delta \\text{Working Capital}$$How to Use
- Enter the net income.
- Enter the non-cash expenses.
- Enter the increase in working capital (negative if released).
- Read the operating cash flow.
FAQ
What is the difference between operating cash flow and net income?
Net income is an accrual-based accounting profit that includes uncollected revenue and non-cash items like depreciation; operating cash flow reflects the actual cash collected from the core business. The two often diverge — depreciation lowers net income without a cash outflow, and rising receivables book revenue without receiving money. OCF better reveals true cash-generation ability and is key to assessing earnings quality.
Why add back non-cash expenses and deduct the increase in working capital?
Depreciation and amortisation were deducted to arrive at net income but involve no cash outflow, so the indirect method adds them back to recover cash flow. An increase in working capital (rising receivables, inventory) means cash is tied up — goods sold but not yet paid, or cash turned into stock — so it is deducted; conversely, rising payables or falling inventory release cash and increase OCF.
What does negative operating cash flow mean?
It means the core business did not produce a positive net cash inflow in the period — possibly due to losses, surging receivables and inventory tying up cash, or a cash-burning expansion phase. A single negative period is not necessarily a crisis (common in growth stages), but if it persists without financing support, watch the funding-chain risk. Read the multi-period trend and analyse it together with net income and investing/financing cash flows.
What are the rules for small and medium enterprises in Hong Kong preparing a cash flow statement?
Hong Kong companies apply the Hong Kong Financial Reporting Standards issued by the HKICPA, where HKAS 7 'Statement of Cash Flows' requires cash flows to be split into operating, investing and financing, with OCF in operating activities. Direct or indirect method is allowed, and SMEs may also adopt the SME-FRS. Either way, OCF reflects the net operating cash. This calculator is a simplified indirect-method model; formal reports should be prepared line by line per the applicable standard.
What is the relationship between OCF and free cash flow (FCF)?
Free cash flow takes OCF and further deducts the capital expenditure (CapEx) needed to maintain and grow the business: FCF ≈ OCF − CapEx. OCF reflects the cash generated by daily operations; FCF further reflects the cash left after reinvestment, available for debt repayment, dividends or buybacks. To assess dividend and solvency capacity, analysts usually work from OCF through to FCF.
References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.