I see this quote "Net cash flow provided by operating activity has to be adjusted for interest and taxes, as necessary, in order to be comparable to operating income (EBIT). Under IFRS, interest expense is classified as a financing cash flow so the only necessary adjustment is for taxes. "
Ok, so i know under IFRS interest expense is either a financing or operating expense, but is that always case to treat it as a financing cost when we are doing ratio analysis to test the actual operating status of the company?
Under IFRS, interest paid is either a financing or operating cash flow, but interest expense is a nonoperating expense. Expenses and cash flows aren’t the same thing. (I know: even the CFA Institute study guides mistakenly write “interest expense” when they mean “interest paid” (as a cash flow). We should strive to be better than they are.)
In general it makes more sense to treat it as a nonoperating expense and a financing cash flow than an operating expense/cash flow.
IFRS considers interest paid more towards Financing, but the interest part on borrowings especially for working capital (shortfall) would be classified as operating.