EBIT

Q & AEBIT
ERIC KHOO asked 7 months ago

I have gone thru Module 2 on Basic Acctg and Stock Selection Criteria.
Q.   Does “Interest paid to Lenders” also include the Loan Repayment Amount?
Q    In the Example 2 of ROE which is 20% is the “Interest $4k that is paid to the Bank” also to
      include the loan repayment amount?

5 Answers
NICHOLAS OH answered 7 months ago

Hi Eric,
I will be answering on behalf of Peter
Q.   Does “Interest paid to Lenders” also include the Loan Repayment Amount?
No. This is just the interest portion of the loan. For most businesses, only the interest of the loan is serviced and the principal will only be paid back at the end of the loan tenure. Loan repayment can normally be seen in the cashflow statement under cashflow from financing activities.
Q    In the Example 2 of ROE which is 20% is the “Interest $4k that is paid to the Bank” also to
      include the loan repayment amount?
No interest paid does not include loan repayment. 
 
 

ERIC KHOO answered 7 months ago

Hi Nicholas …… thanks for the reply however I need a clarification.
Assuming the business obtains a $400k bank loan over 5 years and each month the company makes a payment for $8k.
Is this $8k considered as “Interest payable to lender” OR only a part of the $8k and the remainder considered as “operation expenses”?

NICHOLAS OH answered 7 months ago

Lets say a loan has principal portion and interest portion. Only the interest portion is rrcorded as expense in the income statement. 
The payment of the principal will be reflected as a reduction of the borrowings in liabilities section on balance sheet.

NICHOLAS OH answered 7 months ago

Lets say a loan has principal portion and interest portion. Only the interest portion is rrcorded as expense in the income statement. 
The payment of the principal will be reflected as a reduction of the borrowings in liabilities section on balance sheet.

ERIC KHOO answered 7 months ago

Once again, thanks Nicholas for the clarification and answer.