Financing activities are activities that result in changes in the size and composition of the equity capital and borrowings of the entity.

The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of capital to the enterprise. The following examples of cash flows might arise under these headings:

  • Cash proceeds from issuing shares
  • Cash payments to owners to acquire or redeem the enterprise’s shares
  • Cash proceeds from issuing debentures, loans, notes, bonds, mortgages, and other short or long-term borrowings
  • Cash repayments of amounts borrowed

Cash Flow From Financial Activities is one of the categories of cash flow. Learn more about Cash Flow from Investing Activities in this article: Cash Flow From Investing Activities

Frequently Asked Questions

What is a financial activity?

Financial activity is any activity that involves the use of money or other financial instruments to generate profits. This can include things like investing in stocks, buying and selling property, or taking out loans.

What are the benefits of financial activities?

There are many benefits to engaging in financial activities, including increased wealth, improved investment returns, and greater opportunities for business growth. Financial activities can also help you manage your finances more effectively and make wise decisions about your money.

What are the risks of financial activities?

There are also risks associated with financial activities, including the potential for losses if investments are made incorrectly or property is sold at a loss. Loan repayment can also be risky, especially if the borrower is unable to make regular payments. It is important to understand the risks involved in any financial activity before proceeding.

What should I do if I am unsure about which financial activity to engage in?

If you are unsure about which financial activity to pursue, it is best to consult with a financial advisor. They can help you assess your needs and recommend appropriate options. They can also provide guidance on risk management and how to avoid costly mistakes.

What is an example of cash flow from financing activities?

Cash flow items stemming from a firm's financing activities include: paying cash dividends to shareholders, or repurchasing shares and issuing debt.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

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