Cash flow-to-long-term debt ratio

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vitamin

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Hi, could some please keep me on this question?

I was asked to calculate the "cash flow-to-long-term debt ratio" in one of the questions on Scheweser (Book 3, p.130). Equation of this ratio is: CFO / Book value of long term debt+PV of operating leases

Schweser's answer for this ratio included $20 depreciation expense when calculating CFO, but this $20 is shown as ACCUMULATED depreciation on the provided balance sheet. (on p.129)

I thought we are not suppose to include ACCUMULATED depreciation when calculating CFO?? But only the depreciation expense if it's shown on the income statement?

Thank you so much!!
 
the $ 20 is the dep. for the ureent year ...included in accum.dep overall since purchase of asset ...your not takin the enitre accum amt. just the current yr which is = 20 ...
you add back dep to NI since it is a non cash expense ...i.e does not involve an actual outflow of cash ...

You do not take dep. when you start with sales ....i.e direct method

In the same way int. expense has not been included but if this was done using the direct method int. expense wd be deducted as an outflow ...

hope it helps
 
Listen.. i haven't seen the relevant page you're talking about but i'll give you a tip....

generally, "accumulated depreciation" is spoken of in the context of "sale" of a fixed asset (machinery or land) and is used to calculate the "book-value of the asset" (cost less acc. depreciation).

This book value (given the "sale price" of the asset) is then used to calculate the "profit/loss on the sale of asset" ; which goes in calculating the CFO.

Hope this helps

Jaiman
 
Thanks Rudeboi and Jaiman, I think I got it.
 
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