zero coupon bond with net income

for company issue zero coupon bond, the net income is always understated until matiurity. is it? due to the underestimated interest expense. Thanks. so CFO is overstated. at the date of issue, the CFF will increased by the proceeds received. thanks.

Net income is not understated, because interest expense is charged even though no cash payments are made. It’s CFO that is overstated because no cash interest payments are being made. CFF is understated with zero-coupon debt because the outflow at maturity is greater than the proceeds at issuance.

if net income is charged with interest expense, then by using indirect method, net income is included in CFO, so, how CFO is overstated? the interest expense has been added back? confused. Thanks. chebychev Wrote: ------------------------------------------------------- > Net income is not understated, because interest > expense is charged even though no cash payments > are made. It’s CFO that is overstated because no > cash interest payments are being made. CFF is > understated with zero-coupon debt because the > outflow at maturity is greater than the proceeds > at issuance.