Start with net income from the income statement
Add non-cash expenses such as depreciation and amortization
Add other non-cash charges such as stock-based compensation or impairment losses
Subtract gains from non-operating activities if included in net income
Adjust for changes in working capital:
Subtract increases in accounts receivable
Subtract increases in inventory
Subtract increases in prepaid expenses
Add decreases in accounts receivable
Add decreases in inventory
Add decreases in prepaid expenses
Add increases in accounts payable
Add increases in accrued expenses
Subtract decreases in accounts payable
Subtract decreases in accrued expenses
Use the formula:
Operating Cash Flow = Net Income + Non-Cash Expenses + Working Capital Adjustments
Alternatively, use the indirect method:
Operating Cash Flow = Cash from Operations before Working Capital Changes + Net Working Capital Changes
If using the direct method, calculate:
Cash received from customers
Cash paid to suppliers
Cash paid for operating expenses
Cash paid for taxes
Operating Cash Flow = Cash Inflows – Cash Outflows from Operations