22. Operating cash flow 4 rules to live by

May 01, 2026 04:00 · 6:26 · English · Whisper Turbo · 2 speakers
এই ট্ৰান্সক্ৰিপ্টৰ মেয়াদ শেষ হয় 17 দিন স্থায়ী সংৰক্ষণৰ বাবে উন্নীত কৰক →
Lecture Index
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0:11
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
Since operating cash flow is the mother load of business, here are four rules about operating cash flow that you should continuously measure monthly, quarterly, and annually, and never forget. Number one, operating cash flow, or OCF, should be positive. Negative OCF means the business is losing cash from the operations of the business.
0:40
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
A negative operating cash flow means the sustainability of the business is in jeopardy because the business is paying its bills by either dipping into savings, selling some assets like a vehicle or a computer, raising money from a third party like a bank or an investor.
1:01
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
Sometimes during a growth spurt, for example, a healthy business might temporarily slip into negative operating cash flow territory. This typically happens when a business grows very rapidly and has high inventory needs or large accounts receivable balances. This doesn't mean it's broken, but it should be the exception and short-lived and not the rule.
1:29
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
It usually doesn't last very long, but it can be very painful. When negative operating cash flow happens, you must be very adept at watching the dials and juggling the cash. Rule number two, operating cash flow should be greater than profits. This might sound strange at first glance, but it has to do with depreciation and amortization.
1:58
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
On an income statement, not all expenses are cash. Depreciation, which is the expensing of a tangible asset over the expected useful life of that asset, and amortization, which is the expensing of an intangible asset like a patent or goodwill over the expected life of that asset.
2:23
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
Depreciation and amortization are examples of expenses which reduce profits but never have an impact on cash. Therefore, if your business has depreciation and or amortization expense, your profits should be smaller than your operating cash flow. If your operating cash flow is smaller than your profits, check the balance sheet.
2:52
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
Look for ballooning accounts receivable or other current assets. Check out escalating inventory balances. Look for a sharp decrease in accounts payable or other current liabilities. When profits are good but operating cash flow is weak,
3:12
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
The disease that is consuming your cash and threatening the sustainability of your business is always found on the balance sheet in either rising current assets or declining current liabilities. Measure and correct these cash drains immediately. Rule number three, operating cash flow should be moving in the same direction as profits.
3:39
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
If profits are going up, operating cash flow should also be going up. Not only that, in a well-run business, operating cash flow will be increasing at a faster or higher percentage rate than profits are increasing. A business that makes less and less on more and more will eventually go broke. What we don't want to see is a business whose profits are going up but whose operating cash flow is going down.
4:09
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
This is a business which is becoming less and less productive at converting profits into operating cash flow, and you know that to fix this problem, you need to check what's going on with receivables, inventory, and payables on the balance sheet. Rule number four, operating cash flow is bigger or greater than investing cash needs.
4:38
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
I'll say this another way. OCF greater than ICF. Operating cash flow greater than investing cash flow needs. A business whose operating cash flow is greater than its investment cash requirements is self-sufficient and does not have to rely on the generosity of strangers, which is third-party financing called bankers and investors.
5:09
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
Management can spend its time running the business instead of preparing offering memorandums and knocking on doors to raise capital. Raising money is a full-time job, and it's a major distraction from the operations of a business. Some businesses, on the other hand, are by nature very capital intensive. An example would be real estate or cable television.
5:36
S… Speaker 1 (22. Operating cash flow 4 rules to live by)
Capital-intensive businesses require the purchase of tons of assets to grow or maintain the sales or revenue of the business. These types of businesses will almost never achieve operating cash flow, which is greater than investing cash flow needs. So they'll always be raising money. Capital-intensive businesses consume investing cash in order to grow.
6:06
S… Speaker 2 (22. Operating cash flow 4 rules to live by)
The optics you will receive and the train wrecks you will avoid by paying very close attention to these four operating cash flow rules are worth their weight in gold.

This transcript was generated by AI (automatic speech recognition). May contain errors — verify against the original audio for critical use. AI policy

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