What is Cash Flow from Financing Activities?
The section of the cash flow statement titled Cash Flow from Financing Activities accounts for inflows and outflows of cash resulting from debt issuance and financing, the issuance of any new stock, dividend payments, and any repurchase of existing stock.
How Does Cash Flow from Financing Activities Work?
The cash flow from financing activities section expresses the total net cash flow from the total of any of the financing activities described above. To illustrate, suppose a fictitious company CCF Corp has the following figures under the cash flow from financing activities section of their cash flow statement:
|Cash From Bonds Issued||$1,000|
|Cash From New Stock Issued||$2,000|
|Repayment on Exisiting Loans||($200)|
|Repurchase of Existing Stock||($700)|
|Net Cash Flow from Financing Activities||$1,600|
To calculate cash flow from financing activities, all of the cash inflows and outflows associated with obtaining or repaying capital are summed. In this example, the net cash flow from financing activities is $1,600.
Why Does Cash Flow from Financing Activities Matter?
This section of the cash flow statement is of interest to investors and prospective investors, because it illustrates how much cash flow is attributable to obtaining financing (as opposed to earning it through business operations) and repaying financing (particularly dividends and interest payments).
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