Cash from financing activities

Cash from financing activities is a key section in the cash flow statement. Let’s dive into the detail of the line items of cash from financing activities, and zoom out to review the cash flow statement as a whole.

The definition of cash from financing activities is: an overview of the net flows of cash that are used to fund the company. This provides insight into a company's financial strength as well as changes in its capital structure.

⏱️TIMESTAMPS⏱️
0:00 Introduction
0:14 Cash from financing activities definition
0:31 Cash from financing activities example: Amazon
1:19 Cash from financing activities example: Apple
2:32 Cash flow statement example: Beyond Meat
5:35 Cash from financing activities in Beyond Meat IPO
7:08 Cash flow statement analysis: Apple

A Big Tech company that is interesting to review is Apple. Total cash used in financing activities is an outflow of $91 billion. The vast majority of this is cash returned to shareholders: over $14 billion directly, through dividends, and nearly $67 billion indirectly, through repurchases of common stock that significantly reduce the number of outstanding shares in the market, which make Apple shares far more scarce. Just like Amazon, Apple also has various line items related to either proceeds from issuance of debt (a cash inflow), or the repayments of debt (a cash outflow, between brackets), which for this specific year were a net cash outflow.

So is cash from financing activities always a net outflow, for every company in every year? Certainly not! It depends on how successful the company is (can they afford to pay down debt, pay dividends, and buy back shares), and which stage of development it is in (is it time to grow or time to harvest).

Here is the cash flow statement for a company called Beyond Meat, a producer of plant-based meat substitutes. The company was founded in 2009, was privately held for nearly a decade, and then issued stock to the public through an Initial Public Offering in 2019. By reviewing its cash flow statement for multiple years, you get an appreciation for the connections between the cash balance and the cash inflows and outflows in the operating, investing, and financing categories.

The cash from financing activities section of the cash flow statement provides insight into a company's financial strength, and changes in its capital structure. A fast growing company like Beyond Meat, at this stage of its development, needed significant cash inflows from financing activities to offset the cash outflows in operating and investing activities.

If a company is mature and successful like Apple, the cash flow statement looks very different. First of all, the unit of measurement is billions, not millions. Apple started their fiscal year 2019 with $26 billion in cash balance, generated $69 billion in cash inflow from operating activities (as it is very profitable, and its working capital balances don’t change much), generated $46 billion from investing activities (primarily through the cash inflow from selling marketable securities far exceeding the cash outflow from buying property, plant and equipment), and could therefore afford to buy back shares, pay dividends to shareholders and repay debt in the cash from financing activities section (as we saw earlier in the video in more detail). After all of that, the company still had $50 billion of cash left at the end of the fiscal year!

Philip de Vroe (The Finance Storyteller) aims to make accounting, finance and investing enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

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