What Is Cash Flow From Operating Activities (CFO)?

By Kristi Waterworth – Updated Jun 3, 2025 at 11:14 AM EST

Key Points

CFO measures money flow from core business activities, excluding external funding.
Three cash flow types: operating, investing, and financing, each reflecting different activities.
To analyze CFO, use either direct or indirect methods based on available data.

When you're evaluating a new company or even looking at the numbers of one you've owned for years, it's important to keep an eye on where the money comes from. One key indicator that's important for investors is cash flow from operating activities, sometimes shortened to CFO.

Three people in a small mom-and-pop retail shop. — Image source: Getty Images.

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What is cash flow from operating activities (CFO)?

Cash flow from operating activities (CFO) is an important metric that can demonstrate just how well a company's core business is performing. Unlike some other earnings metrics, CFO only looks at money that's generated from regular business operations; it doesn't account for things like funds raised by a stock offering or depreciation.

CFO is not a metric that you should use to compare your company to other companies. It's best when used against the same company across various time periods. Because companies figure some of the components of CFO, such as capitalization thresholds, based on their own metrics, it's impossible to compare two companies without understanding how all those different things are calculated.

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Types of cash flow

Cash flow from operating activities is just one of three types of cash flow that you may see on a cash flow statement. The three types of cash flow you should be familiar with are:

Cash flow from operating activities. CFO is literally the money that comes in and goes out due to the core components of a business. If your company sells coffee, it's the money your customers give you, minus the cost of the beans, the employees, the cups, and so on.
Cash flow from investing activities. Cash from investing activities isn't just about investments made in other companies or other types of securities; it's also about investing in the company itself, such as buying equipment that can speed up a process. This also includes the sale of investments as part of the cash flow calculation.
Cash flow from financing activities. Cash flow from financing activities includes the money that comes and goes from issuing stocks or bonds, borrowing debt, paying dividends, repurchasing stock, and even paying down debt that's been borrowed.

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Methods for depicting cash flow from operating activities

There are two methods for depicting cash flow from operating activities: indirect and direct. Although these don't sound super exciting, they are useful for calculating CFO based on the information you have available.

Indirect method

With the indirect method, you start with net income on an accrual accounting basis and work backward until it's a cash basis figure. Since accrual accounting means that revenue is recognized when earned (not when cash is received), the figure can be very different than that of cash accounting. This often looks like simply subtracting transactions that were earned but not paid within a certain time with a specific line-item notation on the cash flow statement.

Direct method

The direct method starts with the company recording all transactions on a cash basis. So, when you're paid for a product, for example, you record the payment -- not when it's earned (i.e., when you get the order, but it's not paid). There are many ways and reasons that payments are deferred, which can interfere with accurate cash flow statements when using the accrual method.

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Cash flow from operating activities vs. profit

For investors, it's important to understand the difference between cash flow from operating activities and profit. They do seem a lot alike, and for good reason. Essentially, CFO is a component of profit, but it's not the whole story.

Profit is what's left after all the expenses have been paid -- that includes things that would fall under other cash flow categories, like paying loan payments or dividends. CFO by itself is just the net direction that money is flowing between the company and the company's customers.

So, where profit will tell you how much money a company has made or lost, CFO tells you what direction cash is flowing (positive or negative) in relation to customer-centric activities. CFO, then, is how much you're spending on making coffee for your customer, for example, vs. how much customers are paying for the end product. It doesn't include other investments the company is making or other types of financial activities, like stock offerings.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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