Business Textbooks Boundless Business Financial Management Operating Funds
Business Textbooks Boundless Business Financial Management
Business Textbooks Boundless Business
Business Textbooks
Business
Concept Version 6
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Alternate Sources of Funds

Funds typically originate from company sales and earning revenue; other cash sources include the sale of non-current assets and company stock.

Learning Objective

  • Differentiate between operating, investing and financing cash flows

Key Points

    • Cash inflows and outflows can originate from three types of activities: operating, investing, and financing.
    • Operating activities that generate cash flows include receipts from the sale of goods or services; receipts from the sale of loans, debt, or equity instruments in a trading portfolio; and interest received on loans.
    • Cash inflows from investing activities involve non-current assets, such as sales of land, building, equipment, and marketable securities; loans from suppliers; and payments related to mergers and acquisitions.
    • Financing activities include the inflow of cash from investors, such as banks and shareholders, proceeds from issuing short-term or long-term debt; sale of repurchased company shares (treasury stock); for non-profit organizations, receipts of donor-restricted cash; and sale of the company's stock.

Term

  • non-current assets

    assets and property not easily converted into cash; a fixed/non-current asset can also be defined as an asset not directly sold to a firm's consumers/end-users

Full Text

Sources of Funds

Funds for business operations typically originate from company sales and earning revenue. However, a business can also generate cash funds from other sources as well, such as the sale of non-current assets and through the sale of company stock. The cash flow statement, which shows cash inflows and outflows for a specific reporting period and distinguishes between three types of activities that generate or use cash: operating, investing, and financing.

Cash Flow Statement

The cash flow statement shows cash inflows and outflows for a specific reporting period and distinguishes between three types of activities that generate or use cash: operating, investing, and financing.

Cash from Operating Activities

Operating activities include the production, sales, and delivery of the company's product, as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising, and shipping the product. Operating activities that generate cash flows are:

  1. Receipts from the sale of goods or services
  2. Receipts for the sale of loans, debt, or equity instruments in a trading portfolio
  3. Interest received on loans
  4. Merchandise items which are added back to the net income figure
  5. Dividends received
  6. Revenue received from certain investing activities

Cash from Investing Activities

Cash inflows from investing activities involve cash flows associated with non-current assets:

  1. Sale of a non-current asset (assets, such as land, building, equipment, marketable securities, etc.)
  2. Loans from suppliers
  3. Payments related to mergers and acquisitions

Cash from Financing Activities

Financing activities include the inflow of cash from investors, such as banks and shareholders. Other activities which impact long-term liabilities and equity of the company are also listed under financing activities, such as:

  1. Proceeds from issuing short-term or long-term debt
  2. Sale of repurchased company shares (treasury stock)
  3. For non-profit organizations, receipts of donor-restricted cash
  4. Sale of the company's stock
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