Posted at 18:37h
A company's cash flow from financing activities typically relates to the equity and long-term debt sections of the balance sheet
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Consider Apple's (AAPL) 2014 10-K filing. The largest line items in the cash flow from the financing section are dividends paid, repurchase of common stock, and proceeds from the issuance of debt. Dividends paid and repurchase of common stock are uses of cash, and proceeds from the issuance of debt are a source of cash.
As a mature company, Apple decided that shareholder value was maximized if cash on hand was returned to shareholders rather than used to retire debt or fund growth initiatives. Though Apple was not in a high growth phase in 2014, executive management likely identified the low interest rate environment as an opportunity to acquire financing at a cost of capital below the projected rate of return on those assets.?
Similarly, consider Kindred Healthcare's 2014 10-K filing. The company engaged in a number of financing activities during 2014 after announcing intentions to acquire other businesses. Noteworthy line items in the cash flow from financing section include proceeds from borrowing under a revolving credit facility, proceeds from the issuance of notes, proceeds from an equity offering, repayment of borrowings under a revolving credit facility, repayment of a term loan, and dividends paid.
While Kindred Healthcare paid a dividend, the equity offering and expansion of debt are larger components of financing activities. Kindred Healthcare's executive management team had identified growth opportunities requiring additional capital and positioned the company to take advantage through financing activities.?