Hey everyone,
This problem has been bothering me since this morning. Can someone explain the following logics?
On page 271 in Schweser Notes, it says that companies with finance leases will show HIGHER CFO compared to firms with only operating leases.
In my opinion, it should be the opposite. You can even see it in the chart in Figure 5.
In year 1, CFO from Finance Lease is clearly LOWER (-2079) than that from the Operating Lease (-10000)
The book also says that the higher CFO is because principal repayment is CFF. This confuses me even more.
If a portion of that goes to CFF, the CFO should be even lower, but why higher?
Thanks in advance!
-2,079 is _ higher _ than -10,000.
Which is better: losing $10,000, or losing only $2,079?
Thank you for the response.
I am aware of that. However, aren’t we talking about the magnitude of the flow of the cash?
or we just compare the absolute number of those cash flows?
The way I understand it is that no matter whether it’s + or -, we look at the flow amount.
Am I wrong?
We’re saying that higher is positiver and lower is negativer.