What is Operational Cash Flow?

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Operating cash flow refers to the cash flow generated by a company's daily operating activities, including cash received from the sale of goods, provision of services, tax refunds received, and other cash related to daily operating activities. Operating cash flow can reflect a company's profitability and operational efficiency.

Definition

Operating cash flow refers to the cash flow generated by a company from its regular business activities, including cash received from selling goods, providing services, tax refunds received, and other cash related to daily operations. Operating cash flow reflects a company's profitability and operational efficiency.

Origin

The concept of operating cash flow originated in accounting. As corporate financial management became more complex and investors' interest in a company's true financial status increased, operating cash flow gradually became an important indicator for assessing a company's financial health. In the mid-20th century, with the widespread adoption of cash flow statements, the concept of operating cash flow gained broad application.

Categories and Features

Operating cash flow is mainly divided into positive and negative cash flow. Positive cash flow indicates that the cash inflows from business activities exceed the outflows, usually reflecting strong profitability. Negative cash flow, on the other hand, may indicate challenges in business operations. The characteristic of operating cash flow is that it directly reflects the company's daily operations and is not influenced by accounting policies, thus considered a more genuine financial indicator.

Case Studies

Case 1: Apple Inc. has shown continuous growth in operating cash flow in its annual reports, primarily due to strong product sales and effective cost control. Case 2: Tesla faced challenges with negative operating cash flow in its early development stages but eventually achieved positive cash flow by increasing production capacity and expanding market share.

Common Issues

Investors often misunderstand the relationship between operating cash flow and net profit, assuming they should be the same. In reality, operating cash flow is not affected by accounting policies, while net profit may be influenced by non-cash items such as depreciation and amortization. Additionally, short-term negative cash flow does not necessarily indicate poor business performance; it may result from strategic investments.

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The term "zero-floor limit" refers to a policy whereby merchants are required to obtain authorization for every transaction processed at their store, regardless of its size. By contrast, some stores only require authorization for transactions that are above a certain size, with that size threshold being known as the store's floor limit.

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Lisbon Treaty

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Labor Intensive

The term "labor-intensive" refers to a process or industry that requires a large amount of labor to produce its goods or services. The degree of labor intensity is typically measured in proportion to the amount of capital required to produce the goods or services: the higher the proportion of labor costs required, the more labor-intensive the business.

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Fast-moving consumer goods (FMCGs) are products that sell quickly at relatively low cost. FMCGs have a short shelf life because of high consumer demand (e.g., soft drinks and confections) or because they are perishable (e.g., meat, dairy products, and baked goods).They are bought often, consumed rapidly, priced low, and sold in large quantities. They also have a high turnover on store shelves. The largest FMCG companies by revenue are among the best known, such as Nestle SA. (NSRGY) ($99.32 billion in 2023 earnings) and PepsiCo Inc. (PEP) ($91.47 billion). From the 1980s up to the early 2010s, the FMCG sector was a paradigm of stable and impressive growth; annual revenue was consistently around 9% in the first decade of this century, with returns on invested capital (ROIC) at 22%.

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