Replacement of Operating Capacity

A

Operating cash flow does not include cash outlays for replacement of depreciation of capacity. The cash used for this purpose is classified as an investment cash flow.

The cash spent on replacing operating capacity used up in the normal course of business is classified as operating cash flow.

Operating cash flow refers to the cash generated or used by a company's core operating activities, such as sales of goods or services, payment of operating expenses, and working capital management. It represents the cash inflows and outflows directly related to the company's primary business operations.

Replacing operating capacity involves expenditures on maintaining or replenishing the company's assets that are essential for its ongoing operations. These assets could include machinery, equipment, vehicles, or any other resources required to produce goods or provide services. Such expenditures are necessary to sustain the company's production capabilities and maintain its operational efficiency.

Since the replacement of operating capacity is directly linked to the company's core operations, the cash spent on it is classified as operating cash flow. It is considered an operating expense and is reflected in the operating section of the company's cash flow statement.

To summarize, the correct answer to the question is B. operating cash flow.