FINANCIAL
STATEMENT ANALYSIS 1-25
Financing Activities
Buying and
selling of capital
Financing activities are related to the buying and selling of capital.
Remember, a company has two alternatives for raising capital: debt
and equity. This section of the Cash Flow Statement is a summary of
the equity raised and the debt borrowed and paid off. Usually, only the
net changes of each account are listed.
Cash flow
net increase /
(decrease)
For example, XYZ Corporation's
L
ONG
-
TERM
B
ONDS
account was
$102.7 million in 1992 and $107.4 million in 1993. The company
may have paid off $25 million in bonds and issued $29.7 million in
new bonds, but the Cash Flow Statement will only show the net
increase of $4.7 million.
With that brief explanation about the sources and uses of funds, let's
take a look at XYZ Corporation's Cash Flow Statement.
XYZ Corporation
December 31, 1993
(In Millions $)
OPERATING ACTIVITIES:
Sources:
Net Income Before Preferred Dividends
9.9
Depreciation
8.9
Incr. in Accounts Payable
2.5
Incr. in Accrued Wages and Taxes
0.2
Incr. in Other Current Liabilities
(0.7)
Total Sources from Operations
20.8
Uses:
Incr. in Accounts Receivable
(0.7)
Incr. in Inventories
(3.7)
Incr. in Prepaid Expenses
0.8
Incr. in Other Current Assets
0.1
Incr. in Gross Fixed Assets
22.6
Total Uses from Operations
18.9
FINANCING ACTIVITIES:
Incr. in Notes Payable
1.9
Incr. in Long-term Bonds
4.7
Incr. in Preferred Stock
0.1
Incr. of Common Stock
0.0
Net Funds from Financing
6.7
Total Funds from Operations and Financing
8.6
Less Common and Preferred Dividends
7.7
Incr. (Decr.) in Cash and Mkt Sec.
0.9
Figure 1.5: XYZ Corporation Cash Flow Statement