You have raised a very valid question, why interest paid is not added back to Profit to find out Funds from operations. In my opinion interest paid is a non-operating expense for a non-financing business, hence it should be added to Profit to find out Funds From Operations. Payment of Interest should be shown as an application of Funds. In case of Cash Flow Statement interest paid is treated as Financial Expense, hence it is added back to profit and payment shown as cash outflow on account of financial expenses.
In case of banks and other companies dealing in finance, payment of interest is treated as an operating expense, hence not added back to profit to find out cash from operations. For a venture capitalist received of divided and interest is operating income and it is not deducted from profit to find out cash from operating activities. In nut shell one should keep in mind the nature of the business before classifying interest paid and received as operating or non-operating expenses and incomes.
