Operating Income - calculation method?

income, method, example, material, only

Hi,

I have seen two ways to calculate operating income from Income Statement.

For example, firm A only has expenses items: COGS, SG&A Expenses, R&D Expenses and Depreciation Expenese in Income Statement.

Method #1: Sales - COGS - SG&A Expenses - R&D Expenses = Operating Income
Method #2: Sales - COGS - SG&A Expenses - R&D Expenses - Depreciation = Operating Income (Also is known as EBIT)

Do you know which method is appropriate according to CFAI material?

Thanks.

tobeornottobe

CFA Candidates

Rank: 2

UID: 223457
帖子: 298
主题: 1
注册时间: 2011-7-11
最后登录: 2014-8-7

2^#

发表于 2011-7-11 19:55 | 只看该作者

Method #2 since operating profit = EBIT.

Depreciation is accounted for before operating profit because fixed assets are part of your core operations.

TOP

genuinecfa

CFA Candidates

Rank: 2

UID: 223423
帖子: 370
主题: 14
注册时间: 2011-7-11
最后登录: 2014-8-7

3^#

发表于 2011-7-11 19:55 | 只看该作者

Think it depends.

If you are conducting credit analysis the correct method is Method #1.

See Reading 53, p.198

TOP

maryli

CFA Candidates

Rank: 2

UID: 217999
帖子: 298
主题: 148
注册时间: 2011-5-25
最后登录: 2012-9-12

4^#

发表于 2011-7-11 19:55 | 只看该作者

Method 1 gives you core operating income.

Method 2 gives you operating income.

TOP

senlinlang

CFA Candidates

Rank: 2

UID: 217995
帖子: 325
主题: 171
注册时间: 2011-5-25
最后登录: 2012-9-12

5^#

发表于 2011-7-11 19:55 | 只看该作者

perimel - you are correct.

Non-cash charges are not taken into account for the purposes of credit analysis - use EBITDA (method #1) in this case. For all others, method #2 will suffice.

TOP

stalkey