Dissecting Operating Cash Flow

Operating cash flow (OCF) is where the rubber meets the road: cash that the business actually generates from day-to-day operations. It is pretty common for quant and factor investors to simply use OCF in their factors without even thinking about the underlying dynamics. But thinking about the underlying dynamics is what sets our systems apart. If we take the extra step, while others don't, we can gain (expand) our edge. Where does this line item come from? Accountants like to start with net income and correct for some line items that might be costs but are no real cash outs. Let's start there.