A firm reported after-tax operating income of $136 million, up from $120 million the year before, on

Question:

A firm reported after-tax operating income of $136 million, up from $120 million the year before, on a sales increase from $5,106 million to $5,751 million. Net operating assets increased from $2,321 million to $2,614 million. The firm's average asset turnover during the prior three years had been 2.2.

Calculate free cash flow for the year and normalized operating income for the year. What do your calculations indicate about the quality of the $136 million in operating income?

Asset Turnover
Asset turnover is sales divided by total assets. Important for comparison over time and to other companies of the same industry. This is a standard business ratio. Free Cash Flow
Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the...