What is Cash Flow from Operations (CFO)?

Cash Flow from Operations (CFO), or Operating Cash Flow (OCF), is a section of the Cash Flow Statement that shows the amount of cash a company generates from its regular, day-to-day business activities. It is a key indicator of a company's ability to generate sufficient cash to maintain and grow its operations.

For Startups: While a startup might be unprofitable on its Income Statement due to non-cash expenses like depreciation, it could still be cash flow positive from operations. A positive CFO is a strong sign of financial health and sustainability.

For SaaS: SaaS companies often have strong CFO because they collect cash from annual subscriptions upfront, while the revenue is recognized over time. This upfront cash collection is a major advantage of the SaaS business model.

Calculation: CFO starts with Net Income, adds back non-cash expenses (like depreciation), and adjusts for changes in working capital.

Example: A startup has a net loss but generated positive cash flow from operations because of a large increase in deferred revenue from new annual contracts.