Which component is included in the calculation of operating cash flow (OCF)?

Operating cash flow (OCF) is a measure of the cash generated by a company's normal business operations. It focuses specifically on the cash that a company generates from its core business activities, excluding cash flows from investing or financing activities.

The correct choice includes EBIT (Earnings Before Interest and Taxes), depreciation, and taxes, which are all essential components in determining OCF. EBIT represents the company's earnings from operations before the impact of financing and tax considerations, providing a clear view of operational performance.

Depreciation is included because it is a non-cash charge that reduces taxable income, and while it does not directly involve cash flow, it affects the calculation of the taxable income. This means that while depreciation reduces EBIT, it needs to be added back to compute cash flows since it does not represent an actual cash outflow.

Taxes are also included in the calculation of OCF because they represent a cash outflow that must be accounted for when determining the actual cash available from operations.

Together, these components (EBIT, depreciation, and taxes) provide a comprehensive picture of the cash generated by the company’s core operations, effectively capturing the true operating cash flow. Thus, the inclusion of these elements allows stakeholders to assess the company’s ability to generate cash