A company’s cash flow statement shows its cash inflows and outflows during an accounting period. The statement’s “Cash Flows from Financing Activities” section shows the cash received from and paid to the company’s owners and creditors, such as stockholders and banks. Net cash provided by financing activities equals total cash inflows minus total cash outflows from the financing activities section and is the positive amount of cash that the company’s financing activities contribute to its cash balance. You can calculate net cash provided from financing activities to determine its reliance on outside funding for the period.
Find a public company’s cash flow statement in either its 10-Q quarterly reports or in its 10-K annual reports. You can obtain these reports online from the investor relations page of the company’s website or from the U.S. Securities and Exchange Commission’s EDGAR website.
Find the “Cash Flows from Financing Activities” section of the cash flow statement. Identify the amounts of proceeds from issuing debt and proceeds from selling stock. The statement shows these amounts without parentheses because they are cash inflows. For example, assume a company has $10,000 in proceeds from issuing debt and $20,000 in proceeds from issuing stock.
Calculate the sum of these items to determine the total cash inflows from financing activities. In this example, add $10,000 and $20,000 to get $30,000 in total cash inflows from financing activities.
Identify the amounts of payments on debt and payment of dividends in the financing activities section. The cash flow statement shows these amounts enclosed in parentheses to designate that they are cash outflows. In this example, assume the company paid $5,000 toward debt and paid $1,000 of dividends to stockholders.
Calculate the sum of these payments to determine the total cash outflows in the financing activities section. In this example, add $5,000 and $1,000 to get $6,000 in total cash outflows.
Subtract the total cash outflows from the total cash inflows in the financing activities section to calculate the net cash provided by financing activities. In this example, subtract $6,000 from $30,000 to get $24,000 in net cash provided by financing activities.
If the cash outflows from financing activities were more than the inflows from financing activities, the amount would be negative and would be considered net cash used for financing activities.