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Stocks 303: Understanding the Statement of Cash Flow

Introduction to Understanding the Statement of Cash Flow Importance of the Statement of Cash Flow The Statement of Cash Flow vs. the Income Statement Format of the Statement of Cash Flow The Statement of Cash Flow: Operating Activities The Statement of Cash Flow: Investing Activities The Statement of Cash Flow: Financing Activities Summary of Understanding the Statement of Cash Flow
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The Statement of Cash Flow: Financing Activities

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The Statement of Cash Flow: Financing Activities

To acquire assets, a firm generally must use some type of financing. The firm might choose to issue stock, or perhaps to issue debt. Financing activities are those activities utilized to obtain funds and the consequent repayment of those funds. See the table below:

A Statement of Cash Flow

Some typical cash transactions that you will see in this section of the statement of cash flow include the following:

Cash inflows

  • Proceeds from the issuance of long-term debt
  • Proceeds from the issuance of stock

Cash outflows

  • Repayment of long-term debt
  • Payment of dividends
  • Repurchase of equity shares

The statement of cash flow is broken down into financing activities, investing activities, and operating activities so that investors can easily see where a firm gets its cash and where it spends it. By understanding the statement of cash flow, you will be more capable of identifying a firm’s ability to make interest payments and pay dividends.