Technical definition
Cash generated or consumed by the entity's ordinary operating activities.
How it works
Under the indirect method, net income is adjusted for non-cash items and working-capital changes. It shows how accounting profit translated into operating liquidity during the period.
Everyday example
Net income 20,000 + depreciation 4,000 − receivables increase 3,000 + payables increase 1,500 = operating cash flow 22,500.
Common pitfall
Strong operating cash flow can be temporary if it comes from delaying supplier payments or shrinking necessary inventory.