Cash Flow from Financing (CFF) (2024)

Accounting

Step-by-Step Guide to Understanding the Cash Flow from Financing (CFF)

Last Updated November 27, 2023

What is Cash Flow from Financing Activities?

Cash Flow from Financing Activities tracks the net change in cash related to raising capital (e.g. equity, debt), share repurchases, dividends, and repayment of debt.

Table of Contents

Cash Flow from Financing (CFI): Section Format

The cash flow statement (CFS), which tracks the net change in cash during a specific period, is split into three sections:

Cash Flow from Operating Activities (CFO): Net income from the income statement is adjusted for non-cash expenses and changes in net working capital (NWC).
Cash Flow from Investing Activities (CFI): The cash impact from the purchase of non-current assets, namely PP&E (i.e. CapEx).
Cash Flow from Financing Activities (CFF): The net cash impact of raising capital from equity/debt issuances, net of cash used for share buybacks, and debt repayments — with the outflow from the payout of dividends to shareholders also taken into account.

Cash Flow from Financing: Common Line Items

Cash from Financing	Definition
Debt Issuances	Raising external financing by borrowing funds from lenders, with the obligation to pay interest throughout the holding period and the full principal at the end of the lending term
Equity Issuances	Raising external financing by issuing shares (i.e. pieces of ownership) in exchange to equity investors in the market, who become partial owners post-investment
Share Buybacks	Repurchasing shares that were previously issued and trading in the open market to reduce the total number of shares in circulation (and the net dilution)
Debt Repayment	As part of the loan agreement, the borrower must repay the full debt principal (i.e. the original amount) on the date of maturity
Dividends	Issuing recurring or one-time cash payments to equity shareholders as a form of compensation (i.e. the return of capital)

Cash Flow from Financing Activities Formula

The formula for calculating the cash from financing section is as follows:

Cash Flow from Financing = Debt Issuances + Equity Issuances + (Share Buybacks) + (Debt Repayment) + (Dividends)

Note that the parentheses signify that the item is an outflow of cash (i.e. a negative number).

By contrast, debt and equity issuances are shown as positive inflows of cash, since the company is raising capital (i.e. cash proceeds).

Debt Issuances → Cash Inflow
Equity Issuance → Cash Inflow
Share Buybacks → Cash Outflow
Debt Repayment → Cash Outflow
Dividends → Cash Outflow

Does Interest Expense Appear on Cash from Financing Section?

One common misconception is that interest expense — since it is related to debt financing — appears in the cash from financing section.

However, interest expense is already accounted for on the income statement and affects net income, the starting line item of the cash flow statement.

Cash Flow from Financing (CFF) Conclusion

To wrap up, the cash flow from financing is the third and final section of the cash flow statement.

The cash from financing amount is added to the prior two sections — the cash from operating activities and the cash from investing activities — to arrive at the “Net Change in Cash” line item.

The net change in cash for the period is added to the beginning cash balance to calculate the ending cash balance, which flows in as the cash & cash equivalents line item on the balance sheet.

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FAQs

Cash Flow from Financing (CFF)? ›

Cash flow from financing activities (CFF) measures the movement of cash between a firm and its owners, investors, and creditors. This report shows the net flow of funds used to run the company, including debt, equity, and dividends.

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How to calculate cash flow from financing? ›

Cash Flow From Financing Activities Formula

To calculate cash flow from financing activities, add your dividends paid to the repurchase of debt and equity, then subtract the total number from cash inflows from issuing equity or debt. These can also be found in a cash-flow statement.

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What is an example of a cash flow from a financing activity? ›

Example of cash flow from financing activity is payment of dividend.

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What is cash inflow from financing? ›

Financing Activities

In the financing category, cash inflow includes the amount of money that you borrow and income generated by selling stock or equity. Cash outflows refer to dividend payments and the funds used for principal repayment of the principal amount on existing debt.

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What are the financing cash flows? ›

Financing cash flow is a category of cash flow in a company's financial statements that reflects the inflow and outflow of cash related to financing activities.

Is interest expense a CFO or CFF? ›

Under US GAAP, Interest expense is classified under CFO. Even though it's not part of operations, and it's a function of how the company is financed, it's still classified as CFO. Under IFRS, you can classify it either way–as CFO or CFF.

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Should cash flow from financing activities be positive or negative? ›

The net cash flow from financing activities section can be either positive or negative, just like cash flow as a whole can be positive or negative. Neither is necessarily desirable or undesirable in a vacuum. It all depends on the company's particular circ*mstances.

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Which of the following best describes cash flow from financing activities? ›

Correct answer:Option d. Increase (or minus decrease) in stock, plus increase (or minus decrease) in debt, minus interest paid, minus dividends paid. Explanation: Cash flow from financing activities include the transactions that are undergone to fund the company's assets and investments.

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What are the 4 types of cash flows? ›

Cash Flows from Operating Activities. Cash flows from operating activities result from providing services and producing and delivering goods. ...
Cash Flows from Noncapital Financing Activities. ...
Cash Flows from Capital and Related Financing Activities. ...
Cash Flows from Investing Activities.

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Which of the following would be a financing activity cash flow? ›

Expert-Verified Answer

The cash flow from financing activities refers to the inflows and outflows of cash resulting from the issuance or repayment of debt, issuance or repurchase of equity, and payment of dividends.

Is paying dividends a financing activity? ›

Dividends paid are classified as financing activities. Interest and dividends received or paid are classified in a consistent manner as either operating, investing or financing cash activities. Interest paid and interest and dividends received are usually classified in operating cash flows by a financial institution.