Module VI· Interest Calculation MechanicsIntermediate
Question
How do you treat interest on cash balance (interest income)?
Answer
Interest income equals cash balance times interest rate, usually on average cash or beginning cash. It appears below EBIT and increases pre-tax income. In debt-heavy models, cash interest income is often minor but should be included if cash balances are material. Avoid circularity if cash balance depends on net income and interest income.