Cash flows from financing activities

Cash flows from financing activities is a line item in the statement of cash flows. This statement is one of the documents comprising a company's financial statements. The line item contains the sum total of the changes that a company experienced during a designated reporting period that were caused by transactions with owners or lenders to either:

  • Provide long-term funds to the company; or
  • To return those funds to the owners or lenders. 

If the company is a not-for-profit, then you would also include in this line item all contributions from donors where the funds are to be used only for long-term purposes.

Items that may be included in the financing activities line item are:

  • Sale of stock (positive cash flow)
  • Repurchase of company stock (negative cash flow)
  • Issuance of debt, such as bonds (positive cash flow)
  • Repayment of debt (negative cash flow)
  • Payment of dividends (negative cash flow)
  • Donor contributions restricted to long-term use (positive cash flow)

The cash flows from financing activities line item is one of the more important items on the statement of cash flows, for it can represent a substantial source or use of cash that significantly offsets any positive or negative amounts of cash flow generated from operations.

On the other hand, a smaller organization that has no debt and pays no dividends may find that it has no financing activities in a reporting period, and so does not need to include this line item in its statement of cash flows.

You should delve into the reasons for a large positive or negative balance in the cash flows from financing activities, since it can, for example, denote the need for a large loan to support ongoing negative cash flows from operations. Thus, large amounts in this line item can be considered a trigger for a more detailed investigation.