Cash Flows from Financing Activities

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International Accounting Standard 7 (IAS 7) defines financing activities as the “activities that result in changes in the size and composition of the contributed equity and borrowings of the entity”.

Cash flows mean the inflows and the outflows of cash and cash equivalents. By cash we mean cash on hand and demand deposits. While the cash equivalents comprise short-term liquid investments that are quickly convertible to cash and which are subject to very little risk of changes in value.

Cash flows from financing activities represent the funds that an entity took in or paid out to finance its activities. Financing activities include obtaining financial resources from and returning the financial resources to the owners or shareholders of the organization. This class of cash flows also includes the financial resources obtained from lenders through borrowings (short term or long term) and repayments of the principal amounts of loans.

Following are some of the common examples of cash flows from financing activities.

Examples of inflows:

  • Receipts from issuance of new equity shares
  • Cash received from issuance of debt instruments such as debentures
  • Proceeds from bank borrowings or borrowings from other financial institutions

Examples of outflows:

  • Cash paid shareholders as dividends
  • Repayment of principal portion of loans
  • Repayment of finance lease obligations
  • Repayment of borrowings from banks

Cash paid to shareholders for dividends can also be presented under the class “cash flows from operating activities”. Cash paid for redemption of preferred shares or for buying back the shares is also an example of cash flows from financing activities.

Cash flows from financing activities provide important insights about the financial health of an organization and about its future plans. Positive cash flows from financing activities may indicate intentions of the organization about expansions and growth. Negative cash flows from financing activities can be a sign of improving liquidity position of the company if the debts are repaid. Negative cash flows from financing activities can also provide information about the dividend policy of the organization.

Quote Guest, 17 April, 2014
Hi.....i have a simple problem i just dont know how to find the actual cash in hand...n i also dont know the bal for the first claim...
Please help....tq
Quote Guest, 25 November, 2014
i also don't know the bal for the first claim this day and age it is good to know the different options available for raising finance.
Quote Guest, 12 February, 2015
Its easy we have to add 3 of all activities
Then less with beginning year of cash
And answer will be same as last year which given on balance sheet :)
Quote Guest, 24 June, 2016
if a company is showing negative cash flow from financing activities and another showing positive cash flow than which one is better?
Quote Marcel, 9 August, 2016
Are non-trade intercompany balances movement part of cash flow of financing activities? I was told that this movement should be part of financing by my manager but it does not make sense to me as it is just normal movement just like other payables. Hence i feel that it should be under operating activities.
Quote Guest, 22 March, 2019
Good evening sir : kindly tell me issue of debentures and bank overdraft in cash flows statement for financing company will be classified in which head operating or financing
Quote Guest, 19 November, 2019
What are 'proceeds from borrowings'? The word proceed, to me, refers to income - as in proceeds of sale. Borrowings are loans, so not the entity's 'income'. Do you have examples - to help me understand?
Quote Guest, 13 May, 2020
Hello friends. Just a brief query if you could help out. How do we manually calculate each activity component like Operating, Financing, and Investing by using data appeared on MYOB? Looking forward to hearing from your good end.

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