Operating cash flow versus operating income in Schweser

CFA Level II FRA
#1

Hi guys,

According to Schweser, book 1, p. 211 “operating cash flow includes interest and taxes while operating income does not”.

However, when supposed to calculate the ratio of ‘OCF before interest and taxes / operating income’, the book tells you to add interest and taxes to OCF (which obviously already includes interest and taxes). Doesn’t take make you add interest and taxes twice then? Or put differently, why not rather add interest and taxes to operating income in order to make the latter comparable to OCF?..

Thanks in advance!

#2

I think this issue came up a few weeks back and the confusion is around the term ‘includes.’ If you look at it in terms of deducted it is easier. For example, OCF is after taxes and interest have been deducted. OI is before taxes and interest have been deducted.

I think what Schweser is trying to say is that OCF includes the deduction of interest and taxes while OI does not.

Thanks for using the filed under category.

#3

Great, thanks a lot for your help. I already thought the way Schweser puts it was not making too much sense…