Financing activities involve long-term liabilities and shares of stock, which allow companies to raise capital or repay investors, according to Investopedia and accounting expert Harold Averkamp. Companies report a statement of cash flows, which records the amount of money flowing in and out due to these financing activities.Know More
Financial activities like long-term liabilities include selling or buying bonds, according to Averkamp. Issuing bonds generates a source of cash for companies, which translates into a positive amount in the SCF. Buying or redeeming bonds results in a negative amount because the company is spending money to repurchase bonds or to pay interest on the bond. This attracts investors because the company is reducing its debt, states Investopedia. A company creates greater positive cash flows by selling additional bonds, says Averkamp.
Another important financing activity involves stockholders’ or owner’s equity. Companies can sell their stock – another source of income – and create a positive amount in the SCF, states Averkamp. These stocks include common and preferred stocks, which provide dividends to stockholders. Negative numbers in this section of the company’s SCF means the company is spending cash to make dividend payments, states Investopedia. The company also can create a negative amount by repurchasing its own stock. Cash flow from financing activities determines the company’s financial strength.Learn more about Financial Planning
Current liabilities, also known as short-term liabilities, are business debts that a company reasonably expects to pay with cash within one year or within the company's fiscal year, whichever is longer according to The Law Dictionary, an online version of Black's Law Dictionary. The total amount of current liabilities is tracked in a company's accounting system and reported on its balance sheet.Full Answer >
Subtracting a company's liabilities from its assets results in the business's net worth, also called owner's equity, according to Entrepreneur magazine. Assets, liabilities and net worth are listed on a company's balance sheet.Full Answer >
The reserve ratio is calculated by finding the ratio between the amount of funds held by a financial institution and the total amount of liabilities carried by the institution, according to the Board of Governors of the Federal Reserve System. The ratio can be found by dividing the numbers.Full Answer >
Net working capital is the amount of liquid assets a company uses to fund operations and growth, as Accounting Tools reports. The more assets are available, the better the company can finance operations and ongoing growth. If too little money is available, financing of operations may be at risk.Full Answer >