Investors need information about both cash flows and non-cash changes in debt to compare and evaluate companies.
In a new article, International Accounting Standards Board (IASB) Member and former investor Nick Anderson discusses the increasing prevalence of transactions that are not reflected in cash flow statements—and where investors can find the information needed about non-cash debt changes to aid their analysis.
Non-cash changes in debt occur, for example, when a company changes the classification of liabilities related to supplier finance arrangements, takes on acquired debt as part of a business combination, enters into leases, from foreign exchange changes or from changes in fair values.
In May 2023, the IASB issued new requirements to enhance the transparency of a company’s supplier finance arrangements, also referred to as reverse factoring or supply chain finance. The requirements will also help investors evaluate changes in companies’ debt, whether cash or non-cash.