CFO calculation from CFAI topic exam

Which exam is this?

@googs1484, which reading is that? If I recall the Schweser video had a nifty way of remembering how to derive CFO.

Hello there,

Cash Flow from Operations (CFO) = Sales- Fixed expenses- Variable Expenses + Depreciation Tax Shield is correct indeed.

The Schweser Books provide the formula in the following ways which could be helpful depending on the information you get in the vignette.

CFO= (Sales – Cash Expenses – Depreciation) x (1-Tax Rate) + Depreciation
 or
CFO= (Sales – Cash Expenses) x (1-Tax Rate) + (Depreciation x Tax Rate)

Cash Expenses – Include both fixed and variable expenses.

The problem will always tell you whether the fixed and variable expenses were incurred in cash or credit. My perception, out of having done multiple practice problems, is that if the problem does not specify if the fixed and variable expenses were paid in cash, you just assume they were paid in cash.

I hope this helps.

“If you go to the Corporate Finance topic exams and take the item set for
ENGLAND; it is question number 1. It is asking for the after tax
operating cash flow, which to me means CFO. Apparently I was mistaken.”

I’m sorry I answered the wrong question above. The reason CFO is different from the “after tax operating cash flow” is that the CFO is before taxes and the question asked you to calculate after-tax operating cash flow.

Here is the calculation:

CFO minus Non Cash Items = Earnings Before Taxes (EBT)

Non Cash Items could be Depreciation and/or Amortization.
 
EBT – Income Taxes + Non Cash Items= After Tax Operating Cash Flow.

@googs1484, how do they compare to the EOC questions? I have found EOC questions to not be unreasonably difficult, not a cakewalk either. Probably around 60-something percent on EOC questions.