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- i get that the answer should be A but can someone please comment on the relationship between oci and residual income. this feels a bit fuzzy. why is the answer not c?
OCI is a part of book value that could potentially add a lot of unnecessary or unwanted noise to your Book value. How ? Okay, so consider a firm that would be making numerous passive investments it would classify as available for sale. You could have a lot of unrealized gains or losses that would accumulate in your OCI. This is all irrelevant to valuing a firm and could distort your valuation.
In short, stuff in your OCI is not a part of continuing operations and hence is irrelevant in being considered for valuation.