Plain definition
Operating cash flow is cash generated or used by a company’s principal revenue-producing activities. It differs from operating profit because profit includes non-cash items and because receivables, inventory, and payables change when cash is collected or paid.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
Suppose a distributor earns operating profit in April. Receivables increase by because customers have not paid, and inventory increases by . Assume the extra inventory has been paid for, payables are unchanged, and there are no non-cash charges or other operating adjustments.
Operating cash flow is then negative : less less . The company reported a profit while using cash to finance customer credit and stock.
In a full reconciliation, include non-cash items and all relevant operating adjustments under the applicable reporting framework.
Why it matters
The example prevents a common error: treating a profitable month as proof that operations funded themselves. The management question is where cash went between sale, purchase, invoice, and collection.
Practical consequence
Start with operating profit, identify material non-cash charges, then trace changes in receivables, inventory, and payables to collection and payment dates. Explain the largest bridge items in the monthly report and put their expected cash effect into the dated forecast.