Module I· Cash Flow Statement ConstructionAdvanced
Question
How do you treat restructuring charges in the cash flow statement — cash vs. non-cash?
Answer
Mechanics
Restructuring charges typically contain both components — separating them cleanly is quality-of-earnings standard:
- Non-cash portion: asset impairments (plant closures with PP&E write-downs), goodwill impairment, intangibles write-offs — added back to OCF like other non-cash items.
- Cash portion: severance payments, lease-termination fees, decommissioning costs — booked into OCF via Δ restructuring provision (a balance-sheet line).
Booking logic
If a restructuring expense of $100 is booked in the income statement, of which $60 is non-cash and $40 a future cash outflow, it all runs through net income:
- Add-back: $100 (the entire restructuring expense).
- Δ provision: +$40 (building the provision).
- In the cash-payment year: Δ provision −$40 (release), no income-statement effect.
Deep diveShow more details
Pitch tip
Adjusted EBITDA with a restructuring add-back is standard, but 'pro forma' only if the measures are one-off — repeated restructuring charges (3+ years running) signal structural problems and are NOT add-back-worthy. Classic example: Continental and Volkswagen — multi-year restructuring should be treated partly as run-rate.