Overview of Financial Statements

Read each section in this chapter, which explains the purpose of the balance sheet, income statement, and the cash flow statement. It also is a guide to where you will find financials on publicly traded companies. You should get as much practice working on these statements as you can, since they are the fundamental information on any organization. Make the connections between each financial statement. The more you understand the connectivity of these statements, the better understanding you will have of how the entire accounting system works, which is important if you want to understand the overall operations of any company.

The Statement of Cash Flows

Cash Flow from Financing

Cash flows from financing activities arise from the borrowing, repaying, or raising of money.

Learning Objective

  • Distinguish financing activities that affect a company's cash flow statement from all of the business's other transactions

Key Points

  • Financing activities can be seen in changes in non-current liabilities and in changes in equity in the change-in-equity statement.
  • A positive financing cash flow could be really great for a company (it just went issued stock at a great price) or could be due to the company having to take out loans to stay out of bankruptcy.
  • Issuing credit is not a financing activity though taking on credit is. Like all cash flows, such activities only appear on the cash flow statement when the exchange of money actually takes place.


  • financing
    A transaction that provides funds for a business.
  • financing activities
    actions where money is flowing between the company and investors in the company, such as banks and shareholders

Financing Activities

One of the three main components of the cash flow statement is cash flow from financing. In this context, financing concerns the borrowing, repaying, or raising of money. This could be from the issuance of shares , buying back shares, paying dividends, or borrowing cash. Financing activities can be seen in changes in non-current liabilities and in changes in equity in the change-in-equity statement.


The cash from issuing stocks in a market such as the New York Stock Exchange is positive financing cash flow.

On the liability side, a company may take out a loan. Everything concerning the loan is a financing activity. Receiving the money is a positive cash flow because cash is flowing into the company, while each individual payment is a negative cash flow.

However, when a company makes a loan (by extending credit to a customer, for example), it is not partaking in a financing activity. Extending credit is an investing activity, so all cash flows related to that loan fall under cash flows from investing activities, not financing activities.

As is the case with operating and investing activities, not all financing activities impact the cash flow statement -- only those that involve the exchange of cash do. For example, a company may issue a discount which is a financing expense. However, because no cash changes hands, the discount does not appear on the cash flow statement.

Overall, positive cash flow could mean a company has just raised cash via a stock issuance or the company borrowed money to pay its obligations, therefore avoiding late payments or even bankruptcy. Regardless, the cash flow statement is an important part of analyzing a company's financial health, but is not the whole story.