To The Moon

Today some teaching tutorial for Tiger broker financial analysis info

Always we do not know what is CFO. CFI, CFF, roughly know it is related to cash flow...

Cash flow from financing activities (CFF) is a section of a company’s cash flow statement, which shows the net flows of cash that are used to fund the company. Financing activities include transactions involving debt, equity, and dividends.

Cash flow from financing activities provides investors with insight into a company’s financial strength and how well a company's capital structure is managed. 

Key Takeaways

#Cash flow from financing activities is a section of a company’s cash flow statement, which shows the net flows of cash that are used to fund the company.

#Financing activities include transactions involving debt, equity, and dividends.

#Debt and equity financing are reflected in the cash flow from financing section, which varies with the different capital structures, dividend policies, or debt terms that companies may have.

Definition:

1) Cash flow from operating (CFO) indicates the amount of cash that a company brings in from its regular business activities or operations. This section includes accounts receivable, accounts payable, amortization, depreciation, and other items.

2) Cash flow from investing (CFI) reflects a company's purchases and sales of capital assets. CFI reports the aggregate change in the business cash position as a result of profits and losses from investments in items like plant and equipment. These items are considered long-term investments in the business.

3) 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. 

CFF indicates the means through which a company raises cash to maintain or grow its operations. A company's source of capital can be from either debt or equity. When a company takes on debt, it typically does so by issuing bonds or taking a loan from the bank. Either way, it must make interest payments to its bondholders and creditors to compensate them for loaning their money.

When a company goes through the equity route, it issues stock to investors who purchase the stock for a share in the company. Some companies make dividend payments to shareholders, which represents a cost of equity for the firm.

Positive and Negative CFF

Debt and equity financing are reflected in the cash flow from financing section, which varies with the different capital structures, dividend policies, or debt terms that companies may have.

Transactions That Cause Positive Cash Flow From Financing Activities:

#Issuing equity or stock, which is sold to investors

#Borrowing debt from a creditor or bank

#Issuing bonds, which is debt that investors purchase

A positive number for cash flow from financing activities means more money is flowing into the company than flowing out, which increases the company’s assets.

Transactions That Cause Negative Cash Flow From Financing Activities:

#Stock repurchases

#Dividends

#Paying down debt

A Negative CFF numbers can mean the company is servicing debt, but can also mean the company is retiring debt or making dividend payments and stock repurchases, which investors might be glad to see. 

 Investor Warnings From CFF

A company that frequently turns to new debt or equity for cash might show positive cash flow from financing activities. However, it might be a sign that the company is not generating enough earnings. Also, as interest rates rise, debt servicing costs rise as well. It is important that investors dig deeper into the numbers because a positive cash flow might not be a good thing for a company already saddled with a large amount of debt.

Conversely, if a company is repurchasing stock and issuing dividends while the company's earnings are underperforming, it may be a warning sign. The company's management might be attempting to prop up its stock price, keeping investors happy, but their actions may not be in the long-term best interest of the company.

Any significant changes in cash flow from financing activities should prompt investors to investigate the transactions. When analyzing a company's cash flow statement, it is important to consider each of the various sections that contribute to the overall change in its cash position.