# Cash Flow From Financing Activities (CFF): Formula and Calculations

![Cash Flow from Financing Activities (CFF)](https://www.investopedia.com/thmb/rSTfQBVIqLujGgBwmZEZ5I7WIvI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Term-Definitions_CFF-Final-V2-59b1197815114baf8e44d14286edbf6e.jpg)

*— Mira Norian / Investopedia*

> **Definition**
>
> Cash flow from financing activities (CFF) is part of a statement that shows how a company raises and repays money through stock issuances and debt payments.

## What Is Cash Flow From Financing Activities (CFF)?

Cash flow from financing activities (CFF) helps investors and analysts understand how a company funds its operations and growth. It breaks down a company's [financing,](https://www.investopedia.com/terms/f/financing.asp) how it raises money, and how it pays it back. The CFF highlights actions like stock issuances, borrowing money, repurchasing shares, and repaying debt.

CFF is one of three core sections of a company's [cash flow statement](https://www.investopedia.com/investing/what-is-a-cash-flow-statement/). The other two parts are cash flow from investing activities and cash flow from operating activities.  

### Key Takeaways

*   A positive CFF means more cash was raised (cash inflows) than paid out (cash outflows), which indicates growth.
*   A negative CFF could suggest debt repayment or liquidity concerns.
*   CFF helps assess a company's financing strategy and its reliance on external financing but doesn't explain the long-term impact of these actions.
*   Understanding a company's CFF is important as financing decisions could seem beneficial or concerning without knowing the reasons behind them.

## Formula and Calculation of Cash Flow From Financing Activities (CFF)

To understand a company's cash flow from [financing](https://www.investopedia.com/terms/f/financing.asp) activities, subtract the outflows from the inflows. To calculate, you can use the following formula:

> **CFF = Cash Inflows From Financing - Cash Outflows From Financing**

Where:

*   Cash inflows include money from stock issuances and debt
*   Cash outflows include money used to repay debt, repurchase shares, or distribute dividends

A positive CFF means a company is raising more money than it is paying out, which might indicate growth and expansion. A negative CFF means a company is paying down debt or returning capital to investors.  

## How CFF Works

CFF follows the movement of cash from a company to its investors and creditors, detailing a company's financial structure. It's different from [cash from operating activities](https://www.investopedia.com/terms/c/cash-flow-from-operating-activities.asp), which is cash from a company's core business operations, and [cash from investing activities](https://www.investopedia.com/articles/financial-theory/11/cash-flow-from-investing.asp), which is cash from the purchase and sale of assets.

Cash flow from financing activities deals with the following actions:

*   New stock issuance (cash inflow)
*   Debt, such as loans or bond issuances (cash inflow)
*   [Share repurchases](https://www.investopedia.com/terms/s/sharerepurchase.asp) (cash outflow)
*   Debt repayments (cash outflow)
*   Dividends to shareholders (cash outflow)

It's important to note that neither a positive nor negative CFF is good or bad. The outcome depends on the company's strategy and financial situation. A consistently positive and high CFF could indicate that a company is relying too much on external financing than its [earnings](https://www.investopedia.com/articles/basics/03/052303.asp), which may lead to high debt burdens later on, which could be difficult to repay.

A negative CFF could indicate a healthy debt repayment process or on the other hand, consistent cash outflows could represent strained [liquidity](https://www.investopedia.com/ask/answers/122714/what-liquidity-management.asp). It's important to understand a company's entire financial structure and business situation to determine if its cash flow from financing activities is healthy or one that could signal [financial distress](https://www.investopedia.com/terms/f/financial_distress.asp).  

> **Fast Fact**
>
> The cash flow from financing activities is one section on the cash flow statement. This statement is one of three key financial statements—the other two are the income statement and the balance sheet.

## Benefits and Limitations of Using CFF

CFF can provide investors and analysts with insight into a company's financing activities, but it also comes with many limitations.

### Benefits

CFF details how a company is funding its operations, whether through [debt or equity](https://www.investopedia.com/ask/answers/042215/what-are-benefits-company-using-equity-financing-vs-debt-financing.asp). This shows how much a company relies on external financing and how it pays down its debt.

It also provides information on a company's liquidity. As noted, a positive CFF might indicate a company is raising capital to grow and expand while a negative CFF might indicate a company is aiming to reduce its debt levels or buyback shares, returning value to investors.

CFF can also provide analysts with insight into management's financial strategy and any shifting trends. For example, raising capital might indicate management is changing its capital structure and increasing its [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp).

### Limitations

CFF doesn't provide the entire picture. While an investor can see that a company is [raising capital](https://www.investopedia.com/ask/answers/032515/what-are-different-ways-corporations-can-raise-capital.asp) or paying down debt, CFF doesn't provide insight into why, whether the actions are positive or negative, and what the long-term effect could be.

CFF provides a short-term focus because it captures immediate financing but is not much of an indication of a company's long-term financing strategy. As noted, a company may raise capital in the short term but have difficulty paying that off in the long term.

Lastly, there is a potential for investors to be misled if they don't understand the reasons behind the financing activities. For example, while a negative CFF could appear to be a cause for concern, strategic debt reductions or [share buybacks](https://www.investopedia.com/articles/02/041702.asp) can benefit a company.

While raising capital through stock issuance may appear positive, it might now show if a company is finding it difficult to raise capital through other means.

## Example of CFF

To illustrate CFF, we can take a look at the fictional company, Photo Tech. Here are its financing activities for the year.

For the [fiscal year](https://www.investopedia.com/terms/f/fiscalyear.asp), Photo Tech had a positive CFF of $10 million, indicating it had more cash from financing inflows than outflows, meaning it raised more cash than it paid out. This could indicate Photo Tech is investing in its growth.  

## The Bottom Line

Cash flow from financing activities is a key component of a company's cash flow statement, detailing how a company funds its operations and growth. While a positive CFF can indicate expansion, relying too much on financing, particularly debt, can be risky. Investors and analysts need to look at CFF alongside other financial information to determine a company's financial health and long-term profitability prospects.  

> **Article Sources**
>
> 1.  PwC. "[US Financial Statement Presentation Guide: 6.7 Classification of Cash Flows](https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/financial_statement_/financial_statement___18_US/chapter_6_statement__US/67_class.html)."
>     
> 2.  Harvard Business School Online. "[How To Read & Understand A Cash Flow Statement](https://online.hbs.edu/blog/post/how-to-read-a-cash-flow-statement)."