What is Financing Cash Flow?
Financing Cash Flow is the movement of funds in and out of a company that are related to its financing activities, like borrowing money, repaying debt, or issuing and buying back stock. This cash flow statement is divided into three categories: operating, investing, and financing activities. Essentially, Financing Cash Flow tracks the inflow and outflow of cash related to a company's financing decisions.
Why Financing Cash Flow Is Important
Financing Cash Flow helps investors and analysts evaluate a company's ability to fund its operations and growth using external sources of capital. If a company consistently has a negative Financing Cash Flow, it may be an indication that it is struggling to secure funding or that its debt levels are becoming unsustainable.
On the other hand, a consistently positive Financing Cash Flow may indicate that a company has strong access to financing and is able to fund its growth without relying solely on profits generated from operations.
How to Calculate Financing Cash Flow
Financing Cash Flow is calculated by subtracting the cash inflows from the cash outflows related to financing activities during a given period.
Financing Cash Flow = Cash Inflows from Financing Activities - Cash Outflows from Financing Activities
Cash inflows from financing activities may include things like proceeds from issuing debt or equity, while cash outflows may include things like paying down debt or buying back shares. By subtracting the cash outflows from the cash inflows, we arrive at the Financing Cash Flow for the period.