How come the answers do not add ‘cash paid for interest’ when calculating ‘operating cash flow before interest and taxes’? Could it be because interest is considered a financing cash flow instead of operating? If so, how would you know this to be the case given that the information provided doesn’t seem to indicate it?
Hey Mexicoke,
Can’t seem to find the question you are referring to in the reading. But yes, I guess in that case interest paid is part of the financing cash flow. Financing cash flow is impacted by any transaction involved in equity, debt, and dividends. So for example it could have been interest on debts owed.
For interest paid to be part of operating CF, it would have to be quite specific to the firm you are looking at. For example, if it’s a bank, interest paid could be classified as Operating CF due to the nature of bank’s business.
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