UK Accounting for Finance costs & Interest paid

[mrbean]

Finance costs & Interest paid

Can anyone tell me the specific difference between the two ?

I often see, for example, a 200 million ''Finance cost'' deducted from the Income statement which is then added back to Cash Flow from Operations. So they cancel each other out, but then further down a 100 million deduction for ''Interest Paid'' under cash flow financing activities. So is ''Interest paid'' the only figure that should be deducted to calculate free cash flow with regards to simply investing ?

Cheers

 

[Counterofbeans]

Very difficult question to answer.

First of all, I'm not sure what is included in "finance cost." Typically, this is interest, as well as other costs related to borrowing of money. In this situation, it seems like they paid $100M in interest, which suggests they've buried the other $100M somewhere else (Fixed assets?). I'd need more information

Also, the defintion of free cash flow varies. How are you defining it?

 

[maurem76]

I recently came across this situation while looking at statements of a large hospital system. The "Interest expense" in the P&L included all financing costs, which can include amortization of certain costs like capitalized bond issuance costs, guaranty fees (if loans are guarantied by other strong corporations), and other deferred financing costs. On the statement of cash flows, you would generally see these costs under "amortization". However, it appears that the statement you are looking at may lump amortization and interest together.

If this is the case, the yes, "interest paid" would be the only figure to deduct from free cash flow.