Cash Flows from Financing Activities

As we have discussed in previous articles the cash flow statement consists of three components: Operating, financing, and investing. Here we will pour light on Cash Flows from Financing Activities.

It is the last section in the statement of cash flows and shows cash or cash equivalent transactions done with owners and creditors of the company. On the other hand, we can say that it displays movements in short-term borrowings, long-term liabilities, and shareholder’s equity.

Components

Following are the most common components in financing activities:

  • Cash received from short term borrowings
  • Cash received from long term borrowings
  • Repayment to owners
  • Cash received from issue of shares
  • Payment of loan principal/ repayment
  • Issuance of debt such as bonds
  • Amount paid as dividend

IFRS and US GAAP

You have the liberty to show interest and dividend payment as either cash flow from operating activities or cash flow from financing activities. But, in order to comply with, you have to classify interest payment under operating activities while the dividend payment has to be classified in financing activities.

Example

Cash Flow from Financing Activities

Cash received from short term borrowings$10
Cash recieved from long term borrowings$25
Repayment of loan$(15)
Issue of common stock$15
Dividend paid$5
Net cash flow from financing activities40