Financing cash flows
In one sentenceCash related to the business's sources of financing, such as capital increases, obtaining and repaying loans, and distributing profits to the owners.
Simply put
This section shows where the business got money from outside its activity, and how much of it it paid back. A new loan is a cash inflow, and repaying an installment and distributions are a cash outflow.
If the business relies every year on new loans to cover an operating shortfall, that is a sign worth watching.
Worked example
An auto parts store obtained bank financing of 500,000 SAR, repaid earlier installments of 120,000 SAR, and distributed 80,000 SAR to the partners.
Received from new financing500,000
Repayment of financing installments(120,000)
Distributions to partners(80,000)
Net financing cash flow = 500,000 − 120,000 − 80,000300,000 SAR
Don't confuse it with
Investing cash flowsObtaining a loan is financing, while spending it on buying equipment is investing.