Cash Flow From Operating Activities (CFO)

AAA

DEFINITION of 'Cash Flow From Operating Activities (CFO)'

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

INVESTOPEDIA EXPLAINS '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.

VIDEO

RELATED TERMS
  1. Earnings Before Interest & Tax ...

    An indicator of a company's profitability, calculated as revenue ...
  2. Process Value Analysis - PVA

    A strategy that businesses use to determine whether all of their ...
  3. Prime Cost

    A business's expenses for the materials and labor it uses in ...
  4. Continuing Operations

    Continuing operations is a business term used to describe the ...
  5. Earnings Before Interest, Taxes, ...

    An indicator of a company's financial performance which is calculated ...
  6. Cash Flow

    1. A revenue or expense stream that changes a cash account over ...
Related Articles
  1. Fundamental Analysis

    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. Fundamental Analysis

    Discounted Cash Flow Analysis

    Find out how analysts determine the fair value of a company with this step-by-step tutorial and learn how to evaluate an investment's attractiveness for yourself.
  3. Fundamental Analysis

    Valuing Firms Using Present Value Of Free Cash Flows

    When trying to evaluate a company, it always comes down to determining the value of the free cash flows and discounting them to today.
  4. Markets

    A Clear Look At EBITDA

    This measure has its benefits, but it can also present earnings through rose-colored glasses.
  5. Fundamental Analysis

    Cash Flow Statement: Analyzing Cash Flow From Investing Activities

    Reviewing investment activity is one of the most important exercises an individual can do to see how efficiently a company's management is using shareholder capital to run is operations.
  6. Fundamental Analysis

    Cash Flow Statement: Reviewing The Cash Flow From Operations

    A company's ability to consistently generate positive cash flows from its daily business operations is highly valued by investors. Operating cash flow can uncover a company's true profitability ...
  7. Fundamental Analysis

    Analyzing Operating Margins

    Find out how to put this important component of equity analysis to work for you.
  8. Fundamental Analysis

    Cash Flow From Investing

    Cash flow analysis is a critical process for both companies and investors. Find out what you need to know about it.
  9. Forex Education

    Understanding Liability-Adjusted Cash Flow Yield

    Learn why LACFY is a valuable metric for investors looking to make quick valuation calls on a company's stock relative to it's free cash flow history.
  10. Markets

    How To Evaluate The Quality Of EPS

    Companies can manipulate their numbers, so you need to learn how to determine the accuracy of EPS.

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center