Looks like the CFA has changed one of the definitions of cash flow from operations. I’m sure you’ve all seen the following equations:
FCFF = NI + NCC - Working Capital Investment + Interest(1-tax) - Fixed Capital Investment
CFO = NI+NCC - Working Capital Investment
FCFF = CFO + Interest(1-tax) - Fixed Capital Investment
In vol 5 p148 of the material, the CFA guys provide the following definitions. Doesn’t it look like they have Operating Cash Flow and Free Operating Cash Flow mixed up? In all honesty, I don’t have a firm grasp of how the following measures relate to one another (Operating Cash Flow, Free Operating Cash Flow, Discretionary Cash Flow). Any comments?
Funds from operations Decrease (increase) in noncash current assets Increase (decrease) in nondebt current liabilities Operating cash flow Decrease by capital expenditures Free operating cash flow Decrease by cash dividends Discretionary cash flow Decrease by acquisitions Increase by asset disposals Net other sources (uses) of cash Prefinancing cash flow