{"id":2078,"date":"2026-01-06T18:30:00","date_gmt":"2026-01-06T17:30:00","guid":{"rendered":"https:\/\/kurtovicfinancial.com\/?p=2078"},"modified":"2026-01-06T18:30:37","modified_gmt":"2026-01-06T17:30:37","slug":"operating-cash-flow-ocf-investing-cash-flow-icf-%e2%89%a0-free-cash-flow-fcf","status":"publish","type":"post","link":"https:\/\/kurtovicfinancial.com\/en\/operating-cash-flow-ocf-investing-cash-flow-icf-%e2%89%a0-free-cash-flow-fcf\/","title":{"rendered":"Operating Cash Flow (OCF) + Investing Cash Flow (ICF) \u2260 Free Cash Flow (FCF)"},"content":{"rendered":"\n

The formula from the title has been quoted quite often \u2013 in everyday work, in financial textbooks, and even here on LinkedIn.

This surprises me, because the formula is misleading (a nice way to say \u201cwrong\u201d \ud83d\ude0a).

Whoever came up with this formula, either did not understand cash flow, or was just lazy. \ud83e\udd37\u200d\u2642\ufe0f

***
You know the definition of FCF. In theory at least, FCF(F) should tell us how much cash a company generated to cover debt principal, dividend payout and discretionary outflows<\/strong> (like acquisitions, for example). Ideally, FCF should tell us the level of sustainable CF the company generated.

\u26a0\ufe0f However, the problem with this formula is that it includes many discretionary items.<\/strong> Just look at the investing CF section in any company\u2019s CF report, and you\u2019ll see what\u2019s in there.

You\u2019ll see inflows coming from sale of assets, sale of financial instruments, etc., and outflows for (outsized) CapEx, acquisitions, purchases of financial instruments, etc. This has nothing to do with sustainable CF. (Please note there are always some exceptions.)

With this logic, a company can have a negative or weak FCF and be labelled as having cash flow issues just because it:
\u274eexpanded business by increasing production capacities by 50%
\u274einvested its excess cash in German govt bonds
\u274ebought another company of a similar size
etc.

All these items would likely significantly reduce FCF if we used the formula from the title. But this doesn\u2019t make any sense. We would be completely detached from reality.

So, why do we keep seeing this formula all over the internet (and print)?


***
We should not overcomplicate finance, but we should not oversimplify it either.<\/strong>

\u25b6\ufe0fFCF is a very important metric<\/strong> \u2013 for shareholders, bankers, managers\u2026everybody wants and needs to know how much FCF the company generated and will generate in the future.<\/strong>

But adding up two numbers that scream from the annual report is not enough. It\u2019s pure cognitive laziness. \ud83e\udde0\ud83e\udda5

If we keep using oversimplified and misleading formulas, how many wrong decisions will we make, and how expensive will they be?


\u2705Challenge everything, with the rise of AI it\u2019s important more than ever.<\/strong>

If you would like to challenge financial metrics you use, you know where to find me.<\/p>\n\n\n\n

\"\"<\/figure>\n","protected":false},"excerpt":{"rendered":"

The formula from the title has been quoted quite often \u2013 in everyday work, in financial textbooks, and even here on LinkedIn. This surprises me, because [\u2026]<\/span><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[494,495],"tags":[496,497,498,499],"class_list":["post-2078","post","type-post","status-publish","format-standard","hentry","category-credit-risk-management-en","category-financial-management-en","tag-how-to-calculate-fcf-en","tag-kako-izracunati-fcf-en","tag-sto-je-fcf-en","tag-sto-je-free-cash-flow-en"],"_links":{"self":[{"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/posts\/2078","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/comments?post=2078"}],"version-history":[{"count":3,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/posts\/2078\/revisions"}],"predecessor-version":[{"id":2086,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/posts\/2078\/revisions\/2086"}],"wp:attachment":[{"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/media?parent=2078"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/categories?post=2078"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/kurtovicfinancial.com\/en\/wp-json\/wp\/v2\/tags?post=2078"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}