how many times have we seen that interest income is a CFO? i just did a exam 2 afternoon and see a question that says interest income for a manufacturing company is a non-operating component of income and operating for financial services company. whats the deal?
income statement classification and not cash flow statement
A financial service’s company is all about loans, etc. So it’s their operations, thus CFO.
Yeah. Banks, etc will include interest income as CFO.
It doesn’t affect the treamnet of CFO.
thanks mib. i’m going bonkers
Make sure you understand that there are two classifications: 1. Income statement activities 2. Cash flow statement activities. Classifying something as an operating activity and classifying something as an operating cash flow are two different things.
This is referring to the income statement and how expenses are classified, not related to the cash flow statement. note: a reason why EBIT is commonly referred to as “operating income”
interest comes below the line in the income statement for a manufacturing company but will be included above the line in the income statement for financial companies…for those unfamiliar with “the line”…it is the imaginary line that separates operating and non operating income on the income statement.
Good point, so for a financial services company EBIT is not operating income. What we call EBT is “their” EBIT. Confusing?
Oops, sorry guys.
Analyzing financial companies is so different than manufacturing companies… it’s why we divide the practice in investment banking between financial institutions and corporates. In corporates, we think of financial institutions as a COMPLETELY different job.