Cash from operations (CFO) is a term used in accounting and finance to refer to the cash generated by a company's normal business operations, after taking into account all operating expenses and working capital changes.
Also known as "operating cash flow," it is a measure of the amount of cash a company has generated or used from its core business activities in a given period of time, typically a quarter or a year.
The cash from operations figure is calculated by starting with a company's net income and then making adjustments to account for non-cash items and changes in working capital. These adjustments include adding back non-cash expenses such as depreciation and amortization, and subtracting increases in current assets such as accounts receivable or inventory.
Cash from operations is a key metric for evaluating a company's financial health because it represents the cash that is available for investing in the business, paying down debt, paying dividends, or distributing to shareholders.
Let’s calculate Microsoft's cash from operations for its fiscal year 2021:
To calculate cash from operations, you would start with net income and then make the necessary adjustments:
Cash from Operations = Net Income + Depreciation and Amortization - Increase in Accounts Receivable + Increase in Inventory - Increase in Accounts Payable
Cash from Operations = $61.3 billion + $10.8 billion - $2.9 billion + $223 million - $1.1 billion
Cash from Operations = $68.2 billion
In this example, Microsoft generated $68.2 billion in cash fro