Financial modelling terms explained

Cash Flow from Financing

The cash flow from financing (CFF) item on the cash flow statement shows the cash that a company received or paid due to financing activities. CFF includes cash flows from the issuance of common stock, from the repurchase of stock, from dividends paid to shareholders, from the sale of bonds, and from distributions of excess cash from a subsidiary to its parent company.

What Is Cash Flow from Financing?

Cash flow from financing is the net change in a company's cash and cash equivalents that results from cash inflows and outflows related to financing activities. This includes activities such as issuing and repaying debt, and making and receiving payments on equity investments. The cash flow from financing can be positive or negative, and it can be used to indicate a company's ability to generate cash flow from its financing activities.

How Is Cash Flow from Financing Calculated?

Cash flow from financing is the net amount of cash that a company receives or pays out as a result of its financing activities. This includes all of the company's activities related to issuing and repaying debt, as well as issuing and redeeming equity. The cash flow from financing equation can be represented as follows:

CF = Issuance of Debt - Repayment of Debt - Issuance of Equity - Redemption of Equity

This equation can be broken down into its individual components to help illustrate how it is calculated. The cash flow from financing equation can be decomposed into the following four components:

1. Issuance of Debt: The cash received from issuing new debt.

2. Repayment of Debt: The cash paid out to retire existing debt.

3. Issuance of Equity: The cash received from issuing new equity.

4. Redemption of Equity: The cash paid out to redeem existing equity.

Who Uses Cash Flow from Financing?

Cash flow from financing is used by investors, analysts, and managers to make informed decisions about a company's financial stability and future prospects. It can be used to determine a company's ability to repay its debts, as well as to assess the attractiveness of potential investments. In addition, cash flow from financing can be used to help forecast a company's future earnings and cash flow.

What Are Some Examples of Cash Flow from Financing?

Cash flow from financing activities includes the issuance of debt and equity, as well as the repayment of debt and dividends paid to shareholders. For a company, cash flow from financing activities represents the net increase or decrease in cash and cash equivalents resulting from its financing activities. This can include issuing new debt, issuing new equity, or repaying debt. It can also include dividends paid to shareholders, proceeds from the sale of stock, and payments of principal and interest on debt.

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