It seems pretty straightforward. You don’t need to do any of the noncash adjustments to the income statement (e.g., depreciation, income from affiliates), nor any of the nonoperations adjustments (e.g., gains & losses), so all you have to do is subtract you operating expenses, subtract interest paid, and make your working capital adjustments.
Got it, in fact after reading your post, I realised that the thing to remember is the table of all cashflow types for each type operating, investing and financing. (I guess you need to know IFRS differences as well)
Excuse me if I get this wrong but is not it the “Direct method” that you are asking about?
What is 27f?
Why do we subtract interest and taxes to get the operating cash flow? whereas in Income Statement, Interest expense and Tax expenses come after Operating Income?
And is operating cash flow supposed to represent Operating Income (My definition of Operating income is Revenue-Cogs-Operating expenses) or Net Income from Continuing operations? (probably a dumb question)
27F is the LOS number (learning outcome statements), each LOS is a point defining what the candidates must know. In Schweser notes they are pretty much highlighted. (I only learnt from Schweser)
Operating Income is EBIT and Operating Cashflow is not the same thing (I think), it is the only the cashflows part of operating activities. If it is not a cashflow (meaning that you did not do an exchange physically of money or a transfer) it is not part of Operating Cashflow.
And I checked from the official book, they say Operating income is what I told you and EBIT is when you include gains/losses and other revenue/expenses, but Analysts use EBIT as a proxy for Operating Income. Both are okay as long as you use them consistently.
And yes you are right, OCF does not represent Operating income. It represents NI (that’s why we reconcile the NI and OCF in the indirect method).