Almost every study material I have (including in the mock exam itself) shows Operating Income as a value AFTER depreciation is taken out. On Question 14 of the CFAI Morning Mock, it asks for the Operating Income/Sales ratio. In the answer, it calculates Operating Income as a value BEFORE deprecation gets taken out (Sales - COGS - SG&A - R&D) instead of EBIT. Later on the same mock exam, the exam gives you the Income Statement for Merick Manufacturing and Lisam for questions 31-37, and this example shows Operating Income as the value AFTER depreciation is taken out. I feel like I’m missing something frustratingly small, just curious for any thoughts.
I haven’t taken the mock yet but wow…It is definitely EBIT
Unless the depreciation is not related to the operation of the company! I can’t think f a good example, but if you are a company which buys assets on behalf of others where it depreciates the assets as usual. However that depreciation should be taken out of EBIT? Else, they are not just careful enough with their exams.
I had the same question on the forum on Sunday , and I didn’t see any clear answer , just vague answers like “See whats given and decide for yourself” http://www.analystforum.com/phorums/read.php?12,1144689,1144689#msg-1144689
So I’ve been researching more and it looks like Core Operating Income is EBITDA while Operating Income is EBIT. This is not made clear in the mock, but I’d go with EBIT the day of the exam. I will submit errata request to CFAI and see what happens.
Thanks, let us know the result.