First, it's important to understand how net income and operating cash flows are defined. Net Income is analogous to profit and is calculated by taking total sales and subtracting the cost of goods sold (COGS), selling and general administrative expenses (SG&A), operating expenses, depreciation, taxes, and other expenses. Net income is found on a firm's income statement (see example below).
Operating Cash Flow is equal to net income plus non-cash expenses minus any increases in net working capital. Operating cash flows are concerned primarily with cash inflows and outflows related to a firm's primary business activities (i.e. salaries, purchasing / selling inventory). The operating cash flows can be found on a firm's statement of cash flows.
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