in this video we're going to talk about how to calculate cash flows from financing activities when you're putting together a statement of cash flows so cash flows from financing activities are basically the net cash that is provided or used up by debt holders and equity holders and so when we talk about debt holders we're talking about when you borrow money or when you repay money so that's going to end up in this financing section but not just the dealings with your creditors but also your equity holders as well so if you issue stock or if you pay dividends to your shareholders those activities are going to end up in this financing section as well so if we think about the layout of our statement of cash flows just a quick review we start with our operating section right we've got the net income at the top we make the adjustments to get net operating cash flow and then we have the investing section where we talk about things like the sale of fixed assets or investments and then now we've got this financing section right so we're dealing with with creditors with equity holders those kind of transactions and I just want to know one caveat here is that even though we're talking about things with debt holders and borrowing and repaying debt we do not account for anything having to do with interest expense in the financing section of the statement of cash flows okay so if we had a change in interest payable for example that would actually be categorized under the operating section now I know that's a little counterintuitive so I just wanted to make sure you didn't see the word debt and think that interest would be going down here right so this is just going to be how much we borrow and how much we repay so let's walk through an example it'll make a little bit easier for you to understand maybe so let's say that we've got a company called uncle Tito's icecream and uncle Tito raises $20,000 with a stock issuance and we'll just say that we'll assume this is common stock so common equity there are no preferred shares that uncle Tito's just common shares so it raises 20,000 from the stock issuance and then uncle Tito's pays a $500 dividend back to the common shareholders at some point during the year and then in addition to that uncle Tito's pays off $12,000 worth of debt and sometimes when you pay off bonds it's it's just in our way of saying as say that you redeemed the bonds so you say that uncle Tito redeemed twelve thousand dollars worth of bonds so now let's put together this financing section of the statement of cash flows and see how it would look so we've got this issuance of stock right so this issuance of common stock and now we need to account for that well it's twenty thousand dollars that was raised right so you basically gave out shares of stock and you got cash in return so this is a source of cash so it's going to be a positive twenty thousand dollars but this dividend on the other hand you're paying that back to your shareholders you're saying hey look we had a great year or what you know we're deciding give you five hundred dollars that's going to be a cash outflow so we're going to put it in parentheses to indicate that this is a negative number it's a cash outflow for the company now the $12,000 of bonds that we pay off makes sense that that's also going to be a cash outflow right we're paying off debt that's going to be a use of cash so we have a negative twelve thousand so now all we do to get the net cash here we just total these amounts right here okay so we've got the negative twelve thousand five hundred plus twenty thousand dollars so this is going to come out to seventy-five hundred dollars and it's a positive number so what does that mean that means that the net effect of all the financing activities we did here during the year or during the quarter it was that we generated seventy five hundred dollars worth of cash now let's say let's just assume that this had actually been a negative number then this part right here would say net cash used by financing active
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