Hi Guys, I’d really appreciate help on this question…Schweser SS #12 Reading #44 Question #20… They essentially ask you to calculate P/CFO (Adjusted CFO) in this question. My understanding from the reading was … Adjusted CFO = CFO + NonRecurring Expense + After Tax Interest Expense (Assuming Interest Exp was included as an operating expense) The question says After Tax Interest Expense was included in CFO, then shouldn’t we be adding this amount back to get the adjusted CFO? Why do they ignore the After Tax Interest Expense in this question? -Sri.
Here is my take on it, and please let me know what you think. I already have a thread discussing this, but did not get anywhere. What Schweser did in this question goes against what they teach in the chapter, YOU ARE RIGHT But I think what they teach in the chapter is WRONG, a big typo, and the answer to #44 is CORRECT Why would you want to add back interest when it has already been deducted, only to use in a ratio that uses the price of equity? That interest belongs to debt holders, and it SHOULD be deducted. So rather that adding interest in the cases where it was subtracted like you are told on page 245. I think they ment to say you subtract it when it was not subtracted. It makes much more sense. I hope I made some sense…
Hi GulfCFA, Thank you for your reply. I tend to agree with you and say if under IFRS After Tax Interest Expense was classified under CFF, we need to subtract After Tax Interest from CFO to make it comparable with IFRS and US GAAP companies that classify After Tax Interest as CFO. -Sri.
great thanks! Always ask about these things, Schweser makes mistakes and so does CFAI. After all they both have an erreta. Keep up the good work, you won’t need luck.