zephyranalyst

cfageist wrote:
1) When you purchase a long-lived asset you can either expense it right away or capitalize it. When you capitalize it, it is consider as an investing cash flow. When you expense it it is consider a operating cash flow. That is why many companies would prefer to capitalize in order to ”increase” CFO and ”decrease” CFI.
2) When you capitalize interest  you will need to depreciate the interest as if it would be a depreciable asset. The depreciation charge will automatically decrease your CFO. On the other hand, if interest is not capitalized it would be like an CFI outflow since interest payment is considered as being a CFI and not a CFO. When a company built a long-lived asset for its own use, the interest expense will be depreciated with the total value of the asset. When the company builds the long lived asset for another entity, the capitalized interest will be part of COGS when revenue is recognized.
Anyone, correct me if I am wrong. It has been a while since I studied FRA.
1) You said “When you capitalize it, it is consider as an investing cash flow.” but then why does CFO increase?
2) Why is is the opposite for capitalized interest?