Cash Flow from Financing Activities

What is Cash Flow from Financing Activities?

Cash flows from financing activities result in a change in either equity or borrowings. They include cash flows out to service loan repayments and payment of dividends to the owners, and cash flow in from the proceeds of loans, capital from the owners, bonds, mortgages and other short-term or long-term borrowings.

If we look at the basic cash flow statement below, the highlighted elements represent the main components of cash flow from financing activities of the business.

Cash Flow from Financing Activities
Net income 11,000
Depreciation 12,000
Loss on sale of assets 3,000
Gain on sale of investments -4,000
Changes in working capital -5,000
Operating activities 17,000
Purchase of assets -45,000
Proceeds from the sale of investments 10,000
Proceeds from the sale of assets 5,000
Investing activities -30,000
Issue of new capital 12,000
Issue of new debt 26,000
Repayment of debt -8,000
Dividend payments -2,000
Financing activities 28,000
Net cash flow 15,000
Beginning cash balance 1,000
Ending cash balance 16,000

In the above example the cash flow from financing activities is 28,000 coming into the business. The net amount is a result of the cash flowing into the business from the proceeds of the issue of new capital (12,000) and new debt (26,000), offset by the cash flowing out of the business to make debt repayments (8,000) and dividend payments (2,000).

Examples of Cash Flow From Financing Activities

Examples of cash flow from financing activities include the following:

Financing Activities Cash Inflow

  • Cash proceeds from issuing shares or other equity.
  • Cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short-term or long-term debt.

Financing Activities Cash Outflow

  • Cash payments to acquire or redeem shares.
  • Cash repayments of debt.
  • Cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease.
  • Dividend payments.
Cash Flow from Financing Activities September 27th, 2017Team

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