# What is Operating Cash Flow?

What is Operating Cash Flow? Cash generated by a business's day-to-day operations, excluding investing or financing activity.

## How it works in practice

Operating cash flow is the financial 'pulse.' A business can be profitable on paper and still have a cash-flow problem. Negative OCF means the business is burning cash — even if the P&L looks good. Three straight months of negative operating cash flow is a red flag.

## Related metrics

- Cash Flow — OCF is part of cash flow
- Working Capital — changes in working capital affect OCF
- Inventory — growing inventory means lower OCF
- Net Profit — OCF ≠ net profit

## Common misconception

'OCF = revenue - expenses.' No. OCF accounts for changes in working capital. Bought $28K of inventory that hasn't sold yet? Profit shows an asset — OCF shows a cash outflow. A critical distinction for a store carrying a lot of inventory.

## How to fix it

Negative OCF? (1) Check inventory days — how long is stock sitting? Reduce it with promotions, (2) Check receivables — B2B customers paying late? Shift payables, (3) Check payables — are you paying suppliers too quickly? Manage net terms, (4) Cut fixed costs — negative OCF plus high overhead is dangerous.

## Real-world example

D2C store: net profit $12.5K/month on paper. OCF: -$22K/month. Reason: bought $55K of summer inventory (cash went out) — $43K still unsold. Bank balance falls despite 'profitability.' Fix: inventory financing for peak season + lowering safety stock.

## Where to start

Track OCF monthly alongside your P&L. Quick Ratio = (Cash + Receivables) / Current Liabilities. Below 1 is risky. Above 1.5 is healthy. Quick Ratio gives a fast signal on cash health.

---

Category: Finance · From the [Jimmy OS KPI Glossary](https://jimmy-os.com/glossary/kpi.md) · Source page: https://jimmy-os.com/glossary/kpi/operating-cash-flow