Understand the Cash Flow from Financing Activities Section of the CFS Show
Cash Flow from Financing Activities tracks the net change in cash related to raising capital (e.g. equity, debt), share repurchases, dividends, and repayment
of debt. In This Article
Table of Contents
Cash Flow from Financing SectionThe cash flow statement, which tracks the net change in cash during a specific period, is split into three sections:
Cash Flow from Financing Line Items
Interest Expense and Cash from FinancingOne common misconception is that interest expense — since it is related to debt financing — appears in the cash from financing section. However, interest expense is already accounted for on the income statement and affects net income, the starting line item of the cash flow statement. Cash Flow from Financing Activities FormulaThe formula for calculating the cash from financing section is as follows:
Note that the parentheses signify that the item is an outflow of cash (i.e. a negative number). By contrast, debt and equity issuances are shown as positive inflows of cash, since the company is raising capital (i.e. cash proceeds).
Cash Flow from Financing — CFS Final StepTo wrap up, the cash flow from financing is the third and final section of the cash flow statement. The cash from financing amount is added to the prior two sections — the cash from operating activities and the cash from investing activities — to arrive at the “Net Change in Cash” line item. The net change in cash for the period is added to the beginning cash balance to calculate the ending cash balance, which flows in as the cash & cash equivalents line item on the balance sheet.  Step-by-Step Online Course Everything You Need To Master Financial ModelingEnroll in The Premium Package: Learn Financial Statement Modeling, DCF, M&A, LBO and Comps. The same training program used at top investment banks. Enroll Today Is issuing common stock a financing activity?Issuance of common stock is a financing activity because it involves raising capital to fund the business. In issuing common stocks, the management sells a portion of the company ownership to the public.
Is paying dividends an operating or financing activity?Dividends paid are classified as financing activities. Interest and dividends received or paid are classified in a consistent manner as either operating, investing or financing cash activities.
What are examples of financing activities?Definition of Financing Activities
Borrowing and repaying short-term loans. Borrowing and repaying long-term loans and other long-term liabilities. Issuing or reacquiring its own shares of common and preferred stock. Paying cash dividends on its capital stock.
Which of the following is an example of debt financing?Debt financing includes bank loans; loans from family and friends; government-backed loans, such as SBA loans; lines of credit; credit cards; mortgages; and equipment loans.
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