What Is Non-Operating Cash Flow?
Non-operating cash flow is a key metric in fundamental analysis that is comprised of cash inflows (that a company takes in) and cash outflows (that a company pays out), which are not related to a company's operating activities. Instead, these sources and uses of cash are associated with a company's investing or financing activities. Non-operating cash flow shows up in a company's cash flow statement.
Non-operating cash flow is important because it can help analysts, investors, and companies themselves to measure how effectively a firm manages its free cash flow (FCF), how successful it is in investing its revenue or earnings, or to determine other essential indicators, such as a company's cost of capital.
- Non-operating cash flow is comprised of cash inflows and outflows that are not related to a company's day-to-day business operations.
- This key fundamental metric can help analysts to determine how effectively a firm manages its free cash flow or successfully invests its revenue or earnings.
- Non-operating cash flow appears in a company's cash flow statement in either the cash-flow-from-investing or cash-flow-from-financing section.
Understanding Non-Operating Cash Flow
Non-operating cash flow is comprised of the cash a company takes in and pays out that comes from sources other than its day-to-day operations. Examples of non-operating cash flow can include taking out a loan, issuing new stock, and a self-tender defense, among many others. Items listed under non-operating cash flow are usually non-recurring.
Cash Flow From Investing
Cash Flow From Financing
Non-Operating Cash Flow in Action
Non-operating cash flow can demonstrate how a company uses its FCF—essentially, operating cash flow less CapEx—or how it finances its investing activities if it does not have any (or sufficient) free cash flow.
For example, suppose a company has generated operating cash flow of $6 billion in its fiscal year and has made capital expenditures of $1 billion. It is left with substantial FCF of $5 billion. The company can then choose to use the $5 billion to make an acquisition (cash outflow). This would appear in the cash-flow-from-investing section. The company also could issue $2 billion of common stock (cash inflow) and pay $2 billion in dividends (cash outflow). Both of these would appear in the cash-flow-from-financing section.
Suppose, though, that the company's FCF is only $2 billion, and the company was already committed to acquiring another company for $1 billion (cash outflow). This would appear in the cash-flow-from-investing section. If the company also committed to paying $2 billion in dividends (cash outflow), it could borrow an additional $1 billion in long-term debt (cash inflow). Both of these would show up in the cash-flow-from-financing section.