This is all the cash a company generates or uses from operations for the time period, including noncash charges and credits. Cash flow from operations is shown in millions of dollars ($M).
Origin
This information is taken directly from the cash-flow statement of the company’s most-recent annual report.
Benefit
Cash flow from operations is the cash version of net income. It shows how much cash—the cold, hard kind—a company’s business generated in a given period. The assorted assumptions made by accountants when they tote up net income have no effect on cash flow from operations, so the two numbers can differ substantially.
For the Pros
Many investors focus on cash flow from operations instead of net income because there’s less room for management to manipulate, or accounting rules to distort, cash flow. If net income is much larger than cash flow from operations, it’s a signal that the company’s earnings quality—the usefulness of earnings—is questionable. If cash flow from operations exceeds net income, on the other hand, the company may be much healthier than its net income suggests. That’s why many investors, when they try and value a stock, will use the price/cash-flow ratio—the share price divided by cash flow from operations per share—instead of the P/E ratio.