what is operating cash flow demand ocfd 
the term operating cash flow demand ocfd refers to the amount of operating cash flow an entity needs in order to meet the objectives of its strategic investments an ocfd is integral for both investors and corporate entities for investors it represents the total amount of capital required in order to the desired return over the entire life of the investment a company s ocfd on the other hand is used to compute the cash value added to a company s strategic investments and operations the ocfd allows entities to make smart decisions about how they spend their money on certain investments understanding operating cash flow demand ocfd a strategic investment is any investment that allows an investor to achieve a specific goal an individual who wants to generate a steady risk free stream of income may choose a bond as a strategic investment to achieve this goal a corporation may enter a joint venture with another company as a joint venture in order to gain access to another market all in all strategic investment is one that fits the investor s short or long term game plan investors need capital or operating cash flow in order to meet the initial and ongoing needs of their investments the operating cash flow demand ocfd therefore is the amount of cash flow needed for each strategic investment to have a net present value of zero or achieve minimum profitability 1as noted above calculating the ocfd helps entities make wiser decisions about their investments this figure effectively helps investors decide whether to approve or reject the idea of a particular investment if the cost of the investment is worth more than the benefit the investor can nix the deal 2example of operating cash flow demand ocfd let s use the hypothetical example of a manufacturing corporation to show how operating cash flow demands work let s say the company wants to enter a new market in order to do so it must make a strategic investment in a new manufacturing plant and new machinery the ocfd for this strategic investment would be the minimum amount of cash that the plant would need to generate over its life to meet the return required by investors the amount of money a company expects to earn determines how much it pays for the investment so if a company wants to earn more it should plan to pay more for a strategic investment real world example of operating cash flow demand ocfd now let s take a look at how operating cash flow demand works with a real life example this one involves gud holdings an australian company that is the corporate parent for national household brands ryco filters sunbeam davey pumps lock focus and others ian campbell served as the company s chief executive officer ceo between 1998 and 2013 3 at that time the company was struggling financially this was primarily due to a series of acquisitions the company made in an attempt to grow and boost its presence in the market campbell used a leadership style that combined focus and discipline leading gud holdings to profitability 4campbell expected his company manager to generate strong financial results for a key performance indicator cash value added cva this benchmark is related to ocfd cash value added is a measure of a company s ability to generate cash flow in excess of its investors required return on investments roi by the company 4as ceo campbell expected each gud division to exceed 10 weighted average cost of capital wacc which is the average rate that a company is expected to pay all its security holders to finance its assets gud s businesses are judged on the growth in the cash value added compared to the prior year campbell set an annual budget for each division the wacc varied between businesses managers received bonuses if they achieved their targets 4