Cash from Operations

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. 

Example:

 Let’s calculate Microsoft's cash from operations for its fiscal year 2021:

  • Net income: $61.3 billion
  • Depreciation and amortization: $10.8 billion
  • Increase in accounts receivable: $2.9 billion
  • Increase in inventory: $223 million
  • Increase in accounts payable: $1.1 billion

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