5Y Historical Operating Cash Flow Growth is calculated as the compounded annual growth rate (CAGR) of CFO over the previous 5 financial years. Compounded annual growth rate is the average annual growth rate of an item over a specified period of time longer than one year. Consider the growth rates of operating cash flow for a few years in the below table:
While it is obvious that between FY2010 and FY2015 the operating cash flow of the company increased, the increase and decrease in the interim years does not allow us to understand the approximate yearly growth rate. In such a scenario using compounded annual growth rate is very helpful. CAGR number in the above table has been calculated using the below formula:
((Operating cash flow in FY2015 / Operating cash flow in FY2010) ^ ( 1/N)) -1, where N is the number of years of growth rate i.e 5 .
Higher the historical operating cash flow growth rate, the better.