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Do we have to consider Profit Before Interest and Tax or just Profit Before Tax for calculating cash flow from operating activities? Because I have seen in one of the question from practice kit the answer solution considers just profit before tax and leave out the interest. Kindly Help.
Strictly we should start with the profit before interest and tax, and then show the interest paid and the tax paid separately in the calculation of the net cash flow from operating activities (ust as in the pro-forma that I work through in my free lectures).
In the exam any SOCF question will be filling in the blanks (not producing the whole statement yourself) and so if there is not a blank for ‘interest paid’ then you are going to have to start with the profit after interest given that interest is not being subtracted later.
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