Cash Flow From Operating Activities (CFO)

Loading the player...

What is 'Cash Flow From Operating Activities (CFO)'

Cash flow from operating activities (CFO) is an accounting item indicating the money a company brings in from ongoing, regular business activities, such as manufacturing and selling goods or providing a service. Cash flow from operating activities does not include long-term capital or investment costs. It does include earnings before interest and taxes plus depreciation minus taxes.

Also called operating cash flow or net cash from operating activities, it can be calculated as follows:

Cash Flow From Operating Activities = EBIT + Depreciation - Taxes

BREAKING DOWN 'Cash Flow From Operating Activities (CFO)'

Cash flow from operating activities is reported on the cash flow statement in a company's quarterly and annual reports. Cash flow from operating activities also includes changes in working capital (current assets minus current liabilities), such as increases or decreases in inventory, short-term debt, accounts receivable and accounts payable. Income that a company receives from investment activities is reported separately, since it is not from business operations.

Comparing cash flow from operating activities with EBITDA can give insights into how a company finances short-term capital. Also, investors will examine a company’s cash flow from operating activities separately from the other two components of cash flow - investing and financing activities - to determine from where a company is really getting its money. Investors want to see positive cash flow because of positive income from recurring operating activities. Positive cash flow that results from the company selling off all its assets, or because it has recently issued new stocks or bonds, results in one-time gains and is not an indicator of financial health. Investors will also examine the company’s balance sheet and income statement to get a fuller picture of company performance. Similarly, cash flow from operating activities excludes dividends paid to stockholders and money spent to purchase long-term capital, such as equipment and facilities, because these are also one-time or infrequent expenses.

RELATED TERMS
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out ...
  2. Operating Activities

    A company's typical daily processes that generate income. Operating ...
  3. Cash Flow From Financing Activities

    A category in the cash flow statement that accounts for external ...
  4. Cash Flow From Investing Activities

    An item on the cash flow statement that reports the aggregate ...
  5. Business Activities

    Any activity that is engaged in for the primary purpose of making ...
  6. Operating Cash Flow Ratio

    A measure of how well current liabilities are covered by the ...
Related Articles
  1. Investing

    Cash Flow From Operating Activities

    Cash flow from operating activities is a section of the Statement of Cash Flows that is included in a company’s financial statements after the balance sheet and income statements.
  2. Investing

    Understanding Operating Activities

    Operating activities are the daily processes conducted by a company to generate income.
  3. Retirement

    The Essentials Of Corporate Cash Flow

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself.
  4. Investing

    Analyze Cash Flow The Easy Way

    Find out how to analyze the way a company spends its money to determine whether there will be any money left for investors.
  5. Investing

    Cash Flow From Financing Activities (CFF)

    Cash flow from financing activities is typically the third and final section of the statement of cash flows. It shows changes to cash resulting from activities such as issuing stocks and bonds ...
  6. Investing

    Cash Flow On Steroids: Why Companies Cheat

    Pressure to be the best can sometimes push corporations to cheat. Learn how they do it and how to spot it.
  7. Investing

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  8. Investing

    Fundamental Case Study: Is Amazon's Cash Flow Actually Solid? (AMZN)

    Review Amazon's cash flow situation, including its free cash flow yield, operating cash flow from organic growth and cash flow from debt financing.
  9. Investing

    Cash Flow Statement: Analyzing Cash Flow From Financing Activities

    The financing activity in the cash flow statement measures the flow of cash between a firm and its owners and creditors.
  10. Investing

    Financial Statements: The System

    By David Harper (Contact David)Financial statements paint a picture of the transactions that flow through a business. Each transaction or exchange - for example, the sale of a product or the ...
RELATED FAQS
  1. How is cash flow from operating activities calculated?

    Discover why cash flow from operating activities is significant to businesses, and learn the direct and indirect methods ... Read Answer >>
  2. What will examining a company's cash flow from operating activities tell an investor?

    Understand what examining a company's cash flow from operating activities tells an investor. Learn why the cash flow statement ... Read Answer >>
  3. What are some examples of cash flow from operating activities?

    Learn about the cash flow statement and cash flows from operating activities, and observe some examples of cash flows from ... Read Answer >>
  4. How should I evaluate a company with negative cash flow investing activities?

    Understand how a negative cash flow from investing activities should be evaluated. Learn the sources and uses of cash in ... Read Answer >>
  5. What is the purpose of drawing up a cash flow statement?

    Understand the reasons behind why a company draws up a cash flow statement. Learn how it is used to understand the trends ... Read Answer >>
  6. What is the direct method of calculating cash flow from operating activities?

    Learn how a company prepares its cash flow from operating activities using the indirect method, and understand the difference ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center