Following comments I saw last week from Paul on Laura Ashley Holdings (LON:ALY) and also some of my own research on easyJet (LON:EZJ) it appears that some companies show dividends paid to shareholders in the operating cash flow (OCF) section of their cash flow statements.

In most companies, dividends paid are shown as financing items. However International Financial Reportings Standards (IFRS) allows them to be shown as operating items. Specifically, IAS 7 Statement of Cash Flows states in section 7.34:

“Dividends paid may be classified as a financing cash flow because they are a cost of obtaining financial resources. Alternatively, dividends paid may be classified as a component of cash flows from operating activities in order to assist users to determine the ability of an entity to pay dividends out of operating cash flows.”

The only requirement is consistency between reporting periods (i.e. adopting the same treatment as the prior period). However this allows companies to treat this often large cash flow item differently and this then impacts data providers such as Stockopedia (who rely on Thomson Reuters data) when reporting/screening on OCF or Free Cash Flow (FCF).

The main manifestation of this is that if you look at the FCF section on the StockReports of Laura Ashley Holdings (LON:ALY) or easyJet (LON:EZJ) for example, it appears they make negative FCF over several years. However if you strip the dividends paid out of OCF (as most companies would do) then they actually do make significant OCF and FCF. So if you run a screen based on a favourable FCF or OCF metric, both these companies risk failing to appear.

The purpose of this post is twofold (other than to draw this issue to the attention of Stockopedia users):

1. Does anyone have any ideas how we can effectively address this issue in Stockopedia screens, i.e. to adjust for comparability purposes between companies?

2. Crowdsource a list of companies that we know that do this, please post comments below for companies that show dividends paid in OCF section of the cash flow statement.

I would just like to point out that this is not a…

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