Debt Capacity and Cash Flow
Q: Why do we add back interest expense on the Business Cash Flow Statement?
A: We add back interest to Business Cash Flow in the numerator of the Debt Service Coverage Ratio because in the denominator we measure Business Cash Flow against debt service. Debt service us the sum of interest expense and scheduled long-term debt repayment, which is last year’s current maturities of long-term debt.
Course overview: Debt Capacity and Cash Flow