Please explain operating cash flow divided by Sales?



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Hi, while going through "Analyzing ta cash flow statement" module i did not understand the explanation given for "Operating cash flow/Sales". As per your definition, "it tells you for every rupee in sales how much cash is the company getting finally" however, as per my understanding Net income is also a part of sales.Kindly help.

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Kajal. The difference between Operating profit and net profit is that net profit is after deducting interest and tax from operating profit. So you are right in that net income is the final final profit of the company. But many investors look at operating profit for cash flow decisions, since tax and interest are a given and don't materially depend on the business. Tax h as to be payed anyway and interest can always be restructured by restructuring the debt.

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