Cash Flow from Financing

Financing activities show how a company raises money and how it returns money to those who fund it. Cash comes in when the company takes out loans, issues bonds or sells new shares. Cash goes out when it repays debt, pays dividends or buys back its own shares.

For example, a company that borrows 10 million, repays 4 million of older loans and pays 3 million in dividends has a net cash inflow from financing of 3 million.

The pattern of financing cash flows tells a story. A young, fast-growing company may show large inflows as it raises money to fund expansion. A mature, profitable company often shows outflows as it pays dividends, buys back shares and reduces debt.

Reading financing cash flows together with operating and investing cash flows shows where a company's cash really comes from. A business that relies on constant borrowing to fund day-to-day operations deserves closer attention.