Operating Cash Flow
Operating cash flow is the cash flow calculated from the revenues generated from a company’s operational activities over a specific period of time.
Operational activities include the sale of goods, provision of services, manufacturing of goods, payment of rent, wages, marketing, bills, research and development. The difference between the cash coming in and the cash going out from these activities will provide the operational cash flow figure.
This cash flow figure will give an indication of the cash generating abilities of a company that can be produced from its core business activities.
Why is operating cash flow important?
Operating Cash Flow is the cash flow generated from normal operations of a business so it provides valuable information into the health and profitability of the core of the business.
As it does not include cash from financing or from investments (either outgoing or incoming) you can see whether the product itself that the business is selling is making sufficient money to keep the company afloat.
This is information that is crucial for investors and analysts to see if this cash flow can sustain the business.
How do you calculate operating cash flow?
Operational Cash Flow = Revenue from Operational activities – Costs of the Operational Activities
Where the Revenue from Operating Costs = Revenue from core business operations (Sales of goods, services etc)
And the Costs of Operational Activities = Costs of running the business (rent, wages, expenses, research and development, marketing etc)
The calculation does not include cash from financing or from investments.
Methods of representing operating cash flow
There are two ways of presenting Operating Cash Flow:
The formula for the indirect method
Operational Cash Flow = Net Income + Non-Cash Expenses + Changes in Working Capital (from one period to another)
The Indirect method calculates Operational Cash Flow by using the figure from the accrual accounting method, Net Income, (accrual is where revenue or expenses are recorded when a transaction occurs rather than when a payment is received or made) then adding or deducting from that figure cash that has not yet been received. This will give the cash based figure so you now have the actual cash received in the period.
Non cash expenses are expenses recorded in the income statement that do not involve an actual cash transaction, for example depreciation. This is therefore added back because the depreciation has reduced the net income figure but no cash was used in that statement.
Working Capital = Current Assets (Cash, Accounts receivables (unpaid bills), cost of producing the product (Raw materials inventory)) – Current Liabilities (amount due to pay to creditors)
Working Capital is a net asset, if the asset increases it indicates that cash has been spent in order for the increase to occur. If the change in Working Capital is positive from one period to another then more cash has left the company and needs to be reflected in the Operational Cash Flow calculation as a decrease.
The direct method uses actual cash inflows and outflows from the Operation of the business instead of using the figure from the Operating section from the accrual accounting method and altering it to become a cash statement
Operating Cash Flow (Direct) = Cash inflows – Cash Outflows
Cash Inflows are from sales of goods and services
Cash Outflows are from costs of running the business
Have you thought about Invoice Finance as a cash flow solution for your business?
Invoice finance allows you to release cash quickly from your unpaid invoices.
As your lender, we can release up to 90% of your invoices within 24 hours. On payment of the invoice from your customers, we will then release the final amount minus any fees and charges. There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.
We are an invoice financing company who offer a solution whereby payments are collected on your behalf managed by our team of expert credit controllers so you can focus on running your business. Our Confidential Invoice Discounting solution is offered to businesses who want to maintain their own credit control processes, therefore this remains strictly confidential so your customers are unaware of our involvement.
The benefits of invoice finance companies such as Novuna Business cash flow
Want to understand more Cash Flow Finance terms?
Our Cash Flow Resource Hub has been set up to help SME's with cash flow finance advice, tips and resources to help with their cash flow position.
We explore ways you can begin improving your cash flow situation and start getting your business on track to positive cash flow.
Competent staff, slick technology. Would recommend
Halo is one of the smartest bits of tech I have seen & every team is only as good a it's people and I would like to take this time to actually specifically point out Alex Hall & Claire Davies. Alex is an account manager that has continually improved during our time working together and is a real credit to Novuna. Claire has been exceptional from start to finish; meticulous in her work and very patient with us at every temp - an absolute star. It is a shame that the email address went to a generic platform and not each individual. I totally understand why this works better for companies but it did mean that the personal element was lost meaning that starts like Claire will be harder to identify from a customer point of view.
High recommedation for Novuna Business Cashflow.
My company was in need of invoice factoring to assist with the cashflow due to the nature of debtor days with our clients. After looking at a number of options, the right decision was made to work in partnership with Novuna Business Cashflow. Right from setup through sales to customer service, the communication and support has been outstanding. Providing me with all the information I needed regarding new clients coming onto our books. The system they use is so user friendly and the drawdown payments are very efficient in the fast moving world of temporary payroll. This has allowed my company to look at positive growth knowing we are safe financial hands. I would highly recommend Novuna Business Cashflow 10/10.
Set up went well and communication was good.
Syed and Vipul were extremely helpful top class service
Very helpful from the start
Great people made this process very straightforward.
Jemma from Novuna (formally Hitachi) was brilliant. Worked with us throughout the process and succeeded when some others had failed. Carried out the necessary checks with a smile and cheery demeanour, making what would have been a laborious process quite manageable.
Teething problems -Maybe ?
It's still early days so I may alter this review at a later date. However with retentions and concentration limits and other items, were finding were not getting 85% up front, were probably getting nearer 70% Also when a customer pays the remaining allegedly 15% due to us seems not to be credited to become available. For instance a customer paid Â£6918 and a customer paid Â£1300 hence we should see an extra Â£1330 available (15% of both these payments). However availability seemed to go down and not up by Â£1330 !!! Hard to work out where this 15% has actually gone ? I'll re-submit this review when things become clearer.
I found Hitachi true to their world in every aspect of the service they promised. I can't recommend enough.
Excellent Customer care and service.
Excellent customer service from start of initial conversations, right through to finally becoming a customer. The whole team involved are a credit to Hitachi, they were accommodating and informative the whole way along the process. I would highly recommend Hitachi to future clients and business associates. Thanks Alan.
I really enjoyed working with the Hitachi team, professional, helpful and really good people to deal with. They have made what could have been a very difficult experience a pleasure. Very happy to recommend them.
Hitachi made the process of moving factoring facilities painless, bearing in mind we previously had our facility with the same provider since 1997. I cant fault Hitachi's staff and processes and we are delighted with the move.
Staff excellent all together professional
Great service so far
From start to finish the process for transferring our invoice finance to Hitachi has been been brilliant, a smooth transition, great communication our link Person Jonathan Oakes has helped the process go through seamlessly, A great experience so far and a brilliant start to what we hope will be a long term partnership.