Cash Flow From Financing Activities

AAA

DEFINITION of 'Cash Flow From Financing Activities'

A category in a company’s cash flow statement that accounts for external activities that allow a firm to raise capital and repay investors, such as issuing cash dividends, adding or changing loans or issuing more stock. Cash flow from financing activities shows investors the company’s financial strength. A company that frequently turns to new debt or equity for cash, for example, could have problems if the capital markets become less liquid.

The formula for cash flow from financing activities is as follows:

Cash Received from Issuing Stock or Debt - Cash Paid as Dividends and Re-Acquisition of Debt/Stock

INVESTOPEDIA EXPLAINS 'Cash Flow From Financing Activities'

A positive number for cash flow from financing activities means more money is flowing into the company than flowing out, which increases the company’s assets. Negative numbers can mean the company is servicing debt, but can also mean the company is retiring debt or making dividend payments and stock repurchases, which investors might be glad to see. Investors can also get information about cash flow from financing activities from the balance sheet’s equity and long-term debt sections and possibly the footnotes. Cash flow from financing activities is one of the three main sections of a company’s cash flow statement, the other two being cash flow from operations and cash flow from investing. This section of the cash flow statement measures the movement of cash between a firm and its owners and creditors.

Financing activities that generate positive cash flow include receiving cash from issuing stock and receiving cash from issuing bonds. Financing activities that generate negative cash flow include spending cash to repurchase previously issued stock, to pay down debt, to pay interest on debt and to pay dividends to shareholders.

Companies report cash flow from financing activities in their annual 10-K reports to shareholders. For example, a company might state that it repurchased 1 million shares at an average cost of $10 per share, that it paid out $5 million in shareholder dividends, that it used $2 million to pay off an older, higher-interest bond and that it received $2 million from issuing a new, lower-interest bond.  

VIDEO

Loading the player...
RELATED TERMS
  1. Cash Flow From Operating Activities ...

    An accounting item indicating the cash a company brings in from ...
  2. Free Cash Flow For The Firm - FCFF

    A measure of financial performance that expresses the net amount ...
  3. Operating Cash Flow - OCF

    In accounting, a measure of the amount of cash generated by a ...
  4. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash ...
  5. Cash Flow

    1. A revenue or expense stream that changes a cash account over ...
  6. Free Cash Flow Per Share

    A measure of a company's financial flexibility that is determined ...
RELATED FAQS
  1. What are some examples of cash flow from operating activities?

    Cash flows from operating activities is a section of the cash flow statement that explains the sources and uses of cash from ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Cash Flow From Financing Activities (CFF)

    Cash flow from financing activities is typically the third and final section of the statement of cash flows. It shows changes to cash resulting from activities such as issuing stocks and bonds ...
  2. Fundamental Analysis

    Cash Flow Statement: Analyzing Cash Flow From Financing Activities

    The financing activity in the cash flow statement measures the flow of cash between a firm and its owners and creditors.
  3. Fundamental Analysis

    Cash Flow Statement: Analyzing Cash Flow From Investing Activities

    Reviewing investment activity is one of the most important exercises an individual can do to see how efficiently a company's management is using shareholder capital to run is operations.
  4. Fundamental Analysis

    Cash Flow Statement: Reviewing The Cash Flow From Operations

    A company's ability to consistently generate positive cash flows from its daily business operations is highly valued by investors. Operating cash flow can uncover a company's true profitability ...
  5. Investing Basics

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
  6. Fundamental Analysis

    Analyze Cash Flow The Easy Way

    Find out how to analyze the way a company spends its money to determine whether there will be any money left for investors.
  7. Investing

    Discounted Cash Flow (DCF)

    Discover how investors can use this valuation method to determine the intrinsic value of a stock.
  8. Investing

    Operating Cash Flow

    Find out how OCF can be used to value a company based on their ability to generate cash from operation.
  9. Investing

    A Breakdown Of Stock Buybacks

    Find out what these company programs achieve and what it means for stockholders.
  10. Fundamental Analysis

    Cash Flow From Investing

    Cash flow analysis is a critical process for both companies and investors. Find out what you need to know about it.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center