Accrual Ratios: Cash flow Vs. Balance sheet

[joshuaRome]

I am confused about why the accruals CF ratio is: NI - CFO - CFI
scaling is OK, understood.
From Level I I recall that CFO is actually derived from NI.
CFO = NI + NonCashCarges - WorkingCapitalInvestments
CFO = NI + NCC - WCI
CFO = NI + NCC -WCI
Plugin for CF Ratio numerator:
NI - (NI + NCC - WCI) - CFI
NI - NI - NCC + WCI - CFI
WCI - NCC - CFI
Working Capital - Noncash Charges - Cash from Investing
Odd, why would we take working capital investment and subtract two items that aren’t even a part of working capital investment when we want to see the change in accrual
This just seems wrong to me. Is my understanding of CFO incorrect? I know the formulas are hoping to capture the increase in accrual assets, its straight-forward in the balance sheet approach, but here it makes no sense from what I know about CFO.
Any insight greatly appreciated!

 

[AssUnMan]

We are looking for earnings quality, we’re not really interested in the calculation of “Cash Flow” To help you keep this concept straight you should keep this question in mind….
Would I want a company with $ 100 NI all paid in cash or would I want a company with $ 100 NI 90% in A/R and 10% in cash. Since, cash is king I want the first case becasue I get my money now and dont have to rely on the firms A/R collection abilities.
So, WC and the changes to WC are captured in CFO such as increases in A/R (decrease CFO), Inventory (decreases CFO), A/P (Increases CFO) etc…
So NI less a higher CFO(pure cash basis element of the FinStmts) is a good thing, you want as low a CF Accrual Ratio as possible.
We also Subtract CFI from NI too, because it is purely cash based and contains no accruals.( +/- Signs matter for CFI depending on where the firm sits in the cycle)
What we end up with is a NI that is stripped of all cash basis and contains only accruals (which are usually bad).
So a NI- CFO-CFI trending higher is bad thign and NI-CFO-CFI trending downward is typically a good thisng and shows strong earnings quality