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While computing CFAT according to long term funds approach, why interest expense should be adjusted for tax while adding back whereas depreciation is not adjusted.(i.e..PAT+Depreciaton+Inteest adjusted for tax = CFAT)
Replies (2)
In long term funds approach, we wanted to understand the cash flows for the long term funds.
So long term funds will include the capital funds & debt funds. Hence we include the interest once again but after giving effect to tax because tax shelter needs to be deducted if we wanted to consider the interest portion in cash flows.
Sir
Thank You for your reply
could you please eloborate "tax shelter needs to be deducted if we wanted to consider the interest portion in cash flows."
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