Interest Paid CFF
Cash Interest Payments Classified as Financing Activities
Interest Paid CFF (Interest Paid – Cash Flow Financing) is the actual cash outflow for interest expenses on debt that a company classifies in the financing activities section of the cash flow statement. This classification choice—allowed primarily under US GAAP—treats interest as part of the cost of obtaining capital rather than an operating expense, differing from the more common operating activities treatment.
Why Some Companies Put Interest in Financing
Under US GAAP, companies have a choice: treat cash interest paid as operating (like IFRS requires) or financing. Many pick financing because interest is the 'cost of borrowing money'—similar to repaying debt principal.
Moving it to financing boosts reported Operating Cash Flow (OCF), a key metric watched by investors and often tied to executive bonuses.
IFRS mandates operating classification—no choice.
A Clear Example
Company has $100M debt at 5% interest → $5M annual interest expense.
- IFRS or Operating choice: $5M outflow in Operating Activities → OCF lower by $5M
- US GAAP Financing choice: $5M outflow in Financing Activities → OCF unchanged by interest
All else equal, the financing classification makes Operating Cash Flow look $5M stronger.
Where It Shows Up
In the cash flow statement financing section:
- 'Interest Paid'
- 'Cash Paid for Interest'
- Sometimes grouped in 'Net Other Financing Charges'
- Supplemental note discloses total interest paid (regardless of classification)
Companies must disclose the policy in footnotes.
Who Uses This Classification
- Many large US non-financial companies (Apple, Walmart, etc.)
- Firms focused on OCF metrics or EBITDA-like views
- Companies with high debt but wanting strong operating cash appearance
Financial institutions (banks) usually classify interest as operating—it's their core business.
Pros and Cons
Advantages
- Higher reported OCF
- Aligns with view of interest as financing cost
- Consistent with debt principal treatment
Drawbacks
- Reduces comparability with IFRS companies
- Financing section looks worse
- Can mask true operating cash needs
What to Watch For
- Policy consistency year-to-year
- Comparison to peers (mix of classifications common)
- Supplemental total interest paid (true cash outflow)
- OCF quality—add back if comparing across policies
- Debt levels vs. boosted OCF
High OCF from financing classification may overstate operational strength.
Key Takeaways
Interest Paid CFF = cash interest classified in financing activities.
US GAAP election—boosts Operating Cash Flow.
IFRS requires operating classification.
Reflects view of interest as cost of capital.
Common in non-financial US companies.
Check supplemental disclosure for total cash interest paid.
Interest Paid CFF
Cash Interest Payments Classified as Financing Activities
Interest Paid CFF (Interest Paid – Cash Flow Financing) is the actual cash outflow for interest expenses on debt that a company classifies in the financing activities section of the cash flow statement. This classification choice—allowed primarily under US GAAP—treats interest as part of the cost of obtaining capital rather than an operating expense, differing from the more common operating activities treatment.
Table of Contents
Why Some Companies Put Interest in Financing
Under US GAAP, companies have a choice: treat cash interest paid as operating (like IFRS requires) or financing. Many pick financing because interest is the 'cost of borrowing money'—similar to repaying debt principal.
Moving it to financing boosts reported Operating Cash Flow (OCF), a key metric watched by investors and often tied to executive bonuses.
IFRS mandates operating classification—no choice.
A Clear Example
Company has $100M debt at 5% interest → $5M annual interest expense.
- IFRS or Operating choice: $5M outflow in Operating Activities → OCF lower by $5M
- US GAAP Financing choice: $5M outflow in Financing Activities → OCF unchanged by interest
All else equal, the financing classification makes Operating Cash Flow look $5M stronger.
Where It Shows Up
In the cash flow statement financing section:
- 'Interest Paid'
- 'Cash Paid for Interest'
- Sometimes grouped in 'Net Other Financing Charges'
- Supplemental note discloses total interest paid (regardless of classification)
Companies must disclose the policy in footnotes.
Who Uses This Classification
- Many large US non-financial companies (Apple, Walmart, etc.)
- Firms focused on OCF metrics or EBITDA-like views
- Companies with high debt but wanting strong operating cash appearance
Financial institutions (banks) usually classify interest as operating—it's their core business.
Pros and Cons
Advantages
- Higher reported OCF
- Aligns with view of interest as financing cost
- Consistent with debt principal treatment
Drawbacks
- Reduces comparability with IFRS companies
- Financing section looks worse
- Can mask true operating cash needs
What to Watch For
- Policy consistency year-to-year
- Comparison to peers (mix of classifications common)
- Supplemental total interest paid (true cash outflow)
- OCF quality—add back if comparing across policies
- Debt levels vs. boosted OCF
High OCF from financing classification may overstate operational strength.
Key Takeaways
Interest Paid CFF = cash interest classified in financing activities.
US GAAP election—boosts Operating Cash Flow.
IFRS requires operating classification.
Reflects view of interest as cost of capital.
Common in non-financial US companies.
Check supplemental disclosure for total cash interest paid.
Related Terms
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