Typically when you take Operating Income / EBIT you have already subtracted D&A from it and hence its not a true representation of Free Cash Flow, since D&A are non-cash expenses. So to get true FCF you add back the D&A to the EBIT.
Oct 12 2012 08:11 PM
The quiz question asks "How is Capex treated while calculating DCF?" - to get to FCF, Capex is indeed subtracted from EBITDA. At a basic level FCF = EBITDA - Capex.
Capex is cash spend this financial year on machinery etc
D&A is expensing cash spend in previous periods.