Under U.S. GAAP, the interest cost associated with borrowings used in the self-construction of a business asset may be capitalized to the balance sheet as part of the self-constructed asset’s cost basis. As a consequence, the cash outflows for capitalized interest are reported as part of the cash flow from investing on the statement of cash flow. The interest cost associated with general corporate borrowings, however, is reported on the income statement, and thus, as part of the cash flow from operations.

Discuss whether the practice of interest capitalization misstates a company’s cash flow from operations.