In any organization the operating cash flow matters a lot that is mostly ignored by most of the investors while their eyes are remained stays on the earnings per share and on net income, but in reality if there is a cash company is king and without cash a company is nothing and its loose it’s worth.
Net income is a different if it is compared with the operating cash flow (OCF) but actually it is taken or derived from the net income of any company by looking at the details of the balance sheet that shows the whole assets of any company in a complete form. In general this phenomenon of cash is not understandable but in language of business it is described as how much is actually coming in and coming out from an organization. If we find on balance sheet that more cash is flowing out than it is termed as negative cash flow and for vice versa it is positive cash flow.
If more cash going out from the company than coming in it means the expenditures are more than outputs and there is a negative cash flow in the company that is obvious from that there is something gone wrong with the operating cash flow of that organization.
This is one the main difference between the cash accounting and accrual accounting. The accrual accounting is the detailed view of the cash mattes of the company to exactly record their expenses and income can fully find out or diagnose the reason of negative cash flow.
If any company shows flexible behavior over the cash matters then later or sooner there would be serious harms of lack of cash in company’s account left and it would lead to the disaster of any organization.
The study of operating cash flow (OCF) is at the same time very helpful for all those interested investors who want to do investment in any company as it clearly unfold the cash burning speed of any organization and their what are their net income and the credibility of any organization with reference to its assets that it is profitable to invest or not?
If any investor get the positive cash flow numbers that can trust and can easily do investment with closed eyes as it is the big proof of the viability of that organization. Hence that balance sheets show off the complete and detailed picture of any organizations cash flow situation that there are mostly cash are flowing in or flowing out and what are the position of assets whether thy are having balance or profits through their spending direction.
Another good way of getting the detailed financial picture of any company is through the Price-to-cash flow ratio as it clearly gave you the relevant and required information. It can provide you the information of the company’s operating cash flowing ratio whether it is positive direction or negative direction.