Expert: Paul Henneman - 1/17/2006

Question
Hello,
I am learning to read income statements. I was curious about the meaning of the "interest expense" line. For example, when the 2004 income statement for the stock LWAY says the interest expense was $31,000 does this mean that the company actually paid that interest (i.e. negative cash flow) or does it mean that the interest simply accrued (i.e. no actual cash flow)?

Thanks for you time  

Answer
Mark,
   Thank you for your question! Yes, interest expense generally means that the company has the expense in that amount, but does not always mean that this expense has been paid. Usually it has, the nature of interest is that it should be paid on an ongoing basis. But arrangements can be negotiated, or the company can simply fall behind. So interest expense certainly negatively affects income, but there is no way to tell from that single line for sure how it affects cash flow. It could be accrued. You could likely reconcile the amount with other aspects of the income statement to determine this, but it will take some work!

I hope this helps! Please do not hesitate to follow up with me if I can be of any further service,

Sincerely,
Paul Henneman
President
ValuEngine, Inc
www.ValuEngine.com
www.VEInstitutional.com
www.VEReports.com