CFO - under IFRS and US GAAP

CFA Level II Equities
#1

Dear all,

I understand that IFRS allows interest expense to be classified as CFO outflow or CFF outflow, whereas US GAAP classify interest expense as CFO outflow.

For one of the FCFE equation, we have that:-

FCFE = CFO - FCInv + Net Borrowings ------------(1)

Question: If interest expense has been classified as CFF outflow under IFRS, must we adjust the CFO in equation (1) i.e. deduct after tax interest expese from CFO?

Thank you.

Cheers,

Ernest

#2

tax shelter… missing is (1-taxrate)

#3

Yes Ernest, I believe you have to. FCFE is the cashflow available for equity stakeholders, and interest has to be subtracted to get an accurate and fair view of the FCFE. The fact that it is classified in the CFF component should not make any difference.

For example, CAPEX is from CFI, and it’s still accounted for :slight_smile: