OCF before interest and tax vs Adjusted CFO

  1. Under Equity Section (market based valuation chapter),

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.

  1. However, in the Accouning Section (intergration of financial statement analysis techniques),

(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?


I have not heard of equity and accounting books. Are these US terms?

Sorry, i meant equity and accounting sections…

One is on Page 202 of the Kaplan Book 3 (Equity book), the other one is shown on page 196 of the Kaplan Book 2 (accounting book)