1. Under Equity book,
Adjusted CFO= CFO +net cash interest outflow *(1-tax rate)
They mention that the “adjusted CFO should be used when comparing CFO reported under IFRS (where interest is classified as financing cash flow) with CFO reported uner US GAAP which is under operting cash flow.
2. However, in the Accouning book,
(OCF before interest and taxes)/operating income
They said “if a firm repots the interest as a financing cash flow, no interest adjustment is necessary.
I understand we need to add the cash interest back if the interest is classified as Financing cost in the Euiqty Book. Because we are comparing apple to orange. Just dont see why we dont need to adjust it in the accounting book. Can anyone help explain?
Thanks!
Adjusted CFO= CFO +net cash interest outflow *(1-tax rate)
They mention that the “adjusted CFO should be used when comparing CFO reported under IFRS (where interest is classified as financing cash flow) with CFO reported uner US GAAP which is under operting cash flow.
2. However, in the Accouning book,
(OCF before interest and taxes)/operating income
They said “if a firm repots the interest as a financing cash flow, no interest adjustment is necessary.
I understand we need to add the cash interest back if the interest is classified as Financing cost in the Euiqty Book. Because we are comparing apple to orange. Just dont see why we dont need to adjust it in the accounting book. Can anyone help explain?
Thanks!