When constructing a cash flow statement, how should preferred dividends be treated?
Here's what I did:
Cash flow from operations
Net Income (minus preferred dividends)
Cash flow from Financing
Dividends paid: 0 (because I already took it out from net income in cash flow from operations)
Did I do everything correctly, or should I use the net income before proffered dividends as the net income for OPERATIONS and subtract out preferred dividends from FINANCING?
any help will be much appreciated, thanks.
I don't think you should treat preferred dividends any differently from common dividends. Suppose a company paid out $100 of preferred dividends, you should simply subtract $100 from your financing cash flow.
You never ever subtract dividends from net income. payments to shareholders do not hit your income statement.
Can someone tell me whether I am right?
That's right delirium
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