[startupcfo]

Which of the following should not be disclosed in an enterprise’s statement of cash flows prepared using the indirect method?

Incorrect A.
Interest paid, net of amounts capitalized

B.
Income taxes paid

C.
Cash flow per share

D.
Dividends paid on preferred stock

First off, why is C the correct answer? Wouldn’t that be a useful metric for investors and lenders, just like earnings per share?

Second off, why is A incorrect? If you pay interest and remove “amounts” capitalized, aren’t you violating the whole point of a cashflow statement, which is to show the dollar amounts that physically moved in and out of your bank account without regards to what depreciation or capitalization expenses may be out there?

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[Anthony]

Because GAAP prohibits cash flow per share.

[Anthony]

See FASB 95.

The Board considered whether cash flow per share should be reported. The Board concluded that reporting cash flow per share would falsely imply that cash flow, or some
component of it, is a possible alternative to earnings per share as a measure of performance. The Board also noted other problems with calculating cash flow per share, including differing opinions about the appropriate numerator for the indicator (for example, whether it should be net
cash flow from operating activities or an amount after deducting principal repayments on debt) and the appropriate denominator for the indicator (for example, whether it should be the same as
the number of shares outstanding used for the earnings per share calculation).

123. A major problem in reporting cash flow per share data is investor understanding. Investors over many years have become accustomed to seeing operating data per share computed
only for earnings. Moreover, the measurement problems associated with reporting earnings on a per share basis have been considered and largely settled. To report other data on a per share basis invites the danger that investors, creditors, and others may confuse those measures with the
conventional accounting measure of earnings per share.

[Author]

Replies