Cash flows from financing activities definition
/What are Cash Flows from Financing Activities?
Cash flows from financing activities is a line item in the statement of cash flows. This statement is one of the documents comprising a company's financial statements. The line item contains the sum total of the changes that a company experienced during a designated reporting period that were caused by transactions with owners or lenders to either provide long-term funds to the business or to return those funds to the owners or lenders. If the company is a not-for-profit, then you would also include in this line item all contributions from donors where the funds are to be used only for long-term purposes.
A sample presentation of cash flows from financing activities is highlighted in the following exhibit, which contains a sample statement of cash flows.
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What to Include in Cash Flows from Financing Activities
Items that may be included in the financing activities line item are as follows:
Repurchase of company stock (negative cash flow)
Repayment of debt (negative cash flow)
Payment of dividends (negative cash flow)
Donor contributions restricted to long-term use (positive cash flow)
Understanding Cash Flows from Financing Activities
The cash flows from financing activities line item is one of the more important items on the statement of cash flows, for it can represent a substantial source or use of cash that significantly offsets any positive or negative amounts of cash flow generated from operations. On the other hand, a smaller organization that has no debt and pays no dividends may find that it has no financing activities in a reporting period, and so does not need to include this line item in its statement of cash flows.
You should delve into the reasons for a large positive or negative balance in the cash flows from financing activities, since it can, for example, denote the need for a large loan to support ongoing negative cash flows from operations. Thus, large amounts in this line item can be considered a trigger for a more detailed investigation.
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