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Cash Flow From Financing Activities (Formula & Example) | Calculation - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
of Wallstreetmojo friends today
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we are going to learn a tutorial on cash flow from the financing activity so a cash
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flow statement is divided into three
parts cash flow from investing operating
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activities and financing activities so
we are going to learn
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a piece of cash flow statement that is
the cash flow from financing activities
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formulas and some calculations too late
to the same let me show you how things
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have been recorded in cash flow
statement for financing activities as
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you can see over here there's a net
change in the long term debt short term
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debt some of the items which are there
which gives us the final cash flow from
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the financing activities
now let's discuss hidden in a in a
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really good fashion in nutshell you know
we can say that cash flow from the
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financing activity reports any sort of
issuance or repurchases of a company's
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own bonds and stocks and the payments or dividend it reports the capital
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structure transactions items are found
in the long term capital sections of the
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balance sheets and the statement of the
retain earnings so let's begin cash flow
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from the financing activity common items
included in the cash flow from the
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financing activities are like first cash
dividend that have been paid that is a
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cash outflow I'll write over here CF
and then you have increase in the in the
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short term borrowings that is a short
term borrowing increase then that is
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basically the cash inflow the third
thing that is the decrease in the
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short term borrowing STB I just write over here that is a cash outflow the 4th thing
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that is a long term borrowings so LTB long term borrowings that will be your cash
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inflow then repayment of long term
borrowings so repayment of long term
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borrowings that is again again your cash
outflow the 6th one is your share
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sales which is your cash inflow and the
share repurchases I'll just write SR and
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that will be a cash outflow so it is of
the view for the many investor that cash
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in the end if the king so if a company
has surplus cash then it can be assumed
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that company is operating in the
so-called safe zone so if a company is
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consistently generating more cash than
the cash use it will come out in the
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form of the car dividend payments share
buybacks reduction in debts or the case
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of the acquisition to grow the company
in organically all of this are perceived
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as a good points to create a good
stockholders value let us have a look at
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how the section of the cash in cash flow
statement is repaired understanding the
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preparation method will help us to
evaluate what all and where all to look
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into so that one can read the fine
prints in this section now let's see how
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the calculating of the cash flow from
the financing activity is done let's
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assume that there's a there's that
there's mr. X he starts a new business
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he and he has plan at the end of the
month that he would prepare a financial
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statement like a income statement a
balance sheet and CFS so the
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first month you can say there was there
was no revenue in the first month and no
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such operating expense
hence income statement will result in
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net income to be 0 so in cash flow of
the financing activity cash would be
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increased by $2000 as
that is mr. X investments in the
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business so the cash flow from the
financing activity will show that you
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know there is investment by mr. X who is
the owner
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of 2000 right so if you are new to accounting you also can look into finance so for
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the non finance tutorials then the cash
flow from the financing activity let's
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understand the example let's take an
example to calculate the cash flow from
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the financing activity
now let's take an example to calculate
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the cash flow from the financing
activities when the balance sheet items
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are provided now as you can see below is
the balance sheet of XYZ company for
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2006 and 2007 you can see couple of
details right here the current
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liabilities and all the non current
liabilities are shareholders equity
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which is leading to the cash flow from
the financing activity this other things
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so also assume that over here the common dividend that has been declared is
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we'll be saying that the common dividend
that has been declared is $17,000 now
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based on this calculate the cash flow
from the financing activity so in order
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to prepare the cash flow from the
financing activity we need to look at
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the balance sheet item that includes the
debt and the equity so in addition we
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also need to include the cash division
paid and as the cash outflows here
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as you can see the bonds the company
raises over here 22 to 30000
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so the bond the first and the
foremost thing is the bonds so we can
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say that the increases 30000-20000 that is 10000
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2nd that is uh you can say
common stock decide CS as
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you can see in the common stock there is
a decrease so that you change in the
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common stock balance sheet is 80000 - 1 lakh and that will give
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us 20000 negative please do
note they know that we do not take the
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changes in retained earnings because as
retain earning is linked to the net
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income from the income system it is not
part of the financing activity then the
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next thing that we are going to discuss
as the cash dividend that has been paid
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CDP dividend the cash dividend paid is
what it is your dividend plus any
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increase in your dividend and division
tables so basically that's going to be
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17000 right - 17000 + 10000
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that will give us 7000 in
negative so the cash flow from the
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financing activity is going to be
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10,000-20,000 - your 7000 that
will give us 37800
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is some problem so no because we have
nested signs the negative it's it's
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gonna give us negative answers so it's
going to be 10000 that is as
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above less 20000 and less 7000
which will give us our cash flow from
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the financing activity as - 17000 now we'll discuss an
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example of Apple calculating the
cash flow from the financing activities
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of Apple now let's take an example for
the organization and see how detailed
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cash flow from the financing activities
can help us in determining information
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about the company as you can see over
here there's a proceeds from the issue
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and and so on and so forth all the
detail that have been taken and the
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cash using in the financing activity that
is given which in the negative
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this is another major component of the
cash-spending an investor looks at in
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detail because it is indicated with the
kind of difference in the activity which
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has been undertaken by the company in a
particular area so in financially a 15
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apple incorporation spend closer to 20
484 or 483 million in the financing
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activities a few observation from the
about cash flow from the financing
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activities apart are the company has
been the steady in as a part of the
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dividend pair okay and that was over 11000
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as you can see payment for the dividends
it is quite steady 11126 11561
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and 12150 each an investor who do not
don't wait for the capital appreciation
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can earn money from the state he steady
dividend paid by the company every or
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one morning one important factor to see
is the repurchase of the shares that has
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happened as you can see the repurchasing
of this year is indicated the fact that
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the company has been generating steady
returns the company's generating ample
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cash and using the same to buy back the
stocks so the average repurchase over
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the last 3 years has been 35000 or million so as you can
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see 730 543 and 495 3rd most
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interesting thing that one can see from
the above statement that the company
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has been taking long term debts well
well you can say that in that particular
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scenario this this might be one of the
way company is financing its activity is
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very important I mean however as an
apple incorporation which is overall
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sitting on a pile of cash it would be
interesting to question why such an
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entity will take in more long-term debt
it can be the business decisions or it
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can be because of the fact that borrowing
rates happen at all-time low and the cost
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of the financing through equity is not
feasible for them also we know that you
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know the company on one hand is
repurchasing the share over here and
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hence taking more money from the equity
market can be counterproductive
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so based on this we can make a final
conclusion that investors earlier used
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to look into income statement and
balance sheet for the clues about the
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situation in the company however over
the years investors have now also
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started looking at each one of them
statement along side consumptions of the
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cash flow statement so this actually
helps in getting the whole picture and
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also helps in taking much more
calculated investment decisions so as we
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have seen throughout the tutorial we are
able to see the cash flows from the
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financing activity it is a great indicator of
the core financing activity the company
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so if the company has surplus cash then
it can be assumed that the company is
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operating in so called called safe zone
and if a company is consistently
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generating more cash than the cash used
it will come out in the form of dividend
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payments share buybacks and a reduction
in deaths cash and in case of the
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acquisition to grow company in
organically so all of this are perceived
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as a good points to create a good
stockholders value
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