Cash flow from operations: how to calculate and read it

Operating cash flow, known in French accounting as the capacité d'autofinancement or CAF, is the internal resource generated by the business during a fiscal year. It answers a simple question: once every cash expense has been paid, how much is left to repay loans, invest and reward shareholders?

The additive formula

The most readable method starts from net income and removes every item that does not move cash:

• net income for the year;
• plus depreciation, amortisation and provisions;
• minus reversals of depreciation and provisions;
• plus the net book value of assets sold;
• minus proceeds from asset disposals;
• minus the share of investment grants released to income.

In an AuditExpress report every line of this calculation is displayed under the indicator, so the figure can be traced back to the general ledger.

A worked example

Take a trading company with revenue of 1.2 million euros. Net income is 125,000 euros and depreciation amounts to 24,000 euros. There are no reversals and no disposals. Operating cash flow is therefore 149,000 euros, slightly above 12% of revenue. That is a very good level for retail, where the sector median sits around 5%.

What the lender looks at

A bank compares operating cash flow with annual loan repayments. The most common rule states that debt service should not absorb more than 70% of cash flow, leaving a buffer for routine investment and surprises. The second guardrail is financial debt divided by cash flow: beyond three and a half years, the structure is considered stretched.

Cash flow is also compared with dividends. A company that distributes more than it generates is financing its owners with debt, which weakens its future borrowing capacity.

How to improve it

Three levers act directly on cash flow: margin, control of external expenses and taxation. A two-point increase in gross margin on one million euros of sales represents 20,000 euros of additional cash flow. Renegotiating insurance, telecom and subcontracting contracts often yields lasting savings without touching the business itself.

AuditExpress computes operating cash flow automatically from an accounting ledger export, a trial balance or a tax return, positions it against the sector and proposes quantified recommendations. Analysing one fiscal year takes less than a minute.