Are interest payments considered in cash flow statement
Specifically asking from question 13 of M&I400. I get that interest expense is subtracted from pre-tax income, ultimately decreasing net income after accounting for tax shield. It intuitively makes sense that now since we have already considered interest expense in net income, we don't need to consider it again in cash flow statement, since net income is at the top of that. But then why are interest payments from debt even part of financing cash flow if we can just account for them in income statement? Thank you in advance.
Since interest expense is a financing item, we have to add back after-tax interest expense to arrive at operating cash flows.
Ok: thank you. So do you mean that we "add back" interest expense (since it's financing-related not operating-related) in the operating cash flow statement, then subtract it from the financing cash flow statement portion again, so total cash flows in effect are just impacted by the change in net income?
Operating cash flow yes, but I think he is asking about cash flow in general. If the former, again I agree with you, but if it is the latter, then no, as OP rightly points out himself this was already accounted for in pre-tax income. Companies will disclose how much cash interest was paid usually below the ending cash balance line. This is the case when a company has a significant proportion of non-cash interest such as PIK, so it is helpful to disclose just the cash interest to investors.
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