What is Cash Flow from Financing Activities?
Cash flow from financing activities results 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.
|Loss on sale of assets||3,000|
|Gain on sale of investments||-4,000|
|Changes in working capital||-5,000|
|Purchase of assets||-45,000|
|Proceeds from the sale of investments||10,000|
|Proceeds from the sale of assets||5,000|
|Issue of new capital||12,000|
|Issue of new debt||26,000|
|Repayment of debt||-8,000|
|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 Flows 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.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.