- Identify cash flows that result from financing activities
So the third part of the cash flow statement involves financing activities. If a company borrows money, this is a financing activity. There are some inflows from financing activities including borrowing money or selling common stock. Outflows from financing activities include paying the principal part of debt (a loan payment), buying back your own stock or paying a dividend to investors.
Ready to jump in? Let’s start with this video explanation:
If a company borrows money, the entire amount of the cash comes in at one time, right? So that entire amount will be reflected on your cash flow statement.
Let’s look at inflows and outflows from financing activities:
|Repay the principal amount on a loan||X|
|Sell your own common stock||X|
|Buy back your own common stock||X|
|Pay a stockholder dividend||X|
Can you think of any other activities that may be considered financing activities? If you look at your personal expenditures, a car loan or mortgage might be a financing activity!