Course 303: The Statement of Cash Flows
Cash Flows from Financing Activities
In this course
1 Introduction
2 What It Tells You
3 Cash Flows from Operating Activities
4 Cash Flows from Investing Activities
5 Cash Flows from Financing Activities
6 The Bottom Line

The final section of the statement of cash flows is "cash flows from financing activities." This section includes any activities that involve the company's owners or creditors. For example, the issuance or purchase of common stock, the issuance or repayment of debt, and dividends paid to investors would be found in this section. Although these line items are pretty self-explanatory--dividends paid is exactly what it says--we think investors should look carefully at how much stock a company is issuing or repurchasing.

Issuance/Purchase of Common Stock. This is an important number to look at because it shows how a company is financing its business. Newer companies and rapidly growing companies often need to issue lots of new stock to fund their growth. New stock issuance typically dilutes existing shareholders' ownership--they own a smaller piece of the whole pie--but it also gives the company cash to expand.

Meanwhile, mature companies that have ample free cash flow often will buy back their own stock, which has the effect of increasing the value of existing shares--existing shareholders own a bigger piece of the pie. Share repurchases and dividend payments are typically the only two ways a company can enrich its shareholders with its cash flows.

Next: The Bottom Line >>


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