What is non-operating cash flow?

Non-operating cash flow is a key measure in fundamental analysis which consists of cash inflows (which a business receives) and cash outflows (which a business pays), which are unrelated to operating activities. Instead, these sources and uses of cash are associated with the investing or financing activities of a business. Non-operating cash flows appear in the Cash Flow.

Non-operating cash flow is important because it can help analysts, investors, and businesses themselves measure how effectively a business manages its operations. free movement of capital (FCF), how successful it is in investing its income or profits, or determining other key metrics, such as cost of capital.

Key points to remember

  • Non-operating cash flow includes cash inflows and outflows that are not related to the day-to-day business operations of a company.
  • This key fundamental metric can help analysts determine how efficiently a company manages its free cash flow or successfully invests its income or profits.
  • Non-operating cash flow appears in a company’s cash flow statement in the section Cash flows from investing or cash flows from financing.

Understanding non-operating cash flow

Non-operating cash flow includes cash that a business receives and pays that comes from sources other than its day-to-day operations. Examples of non-operating cash flow may include taking out a loan, issuance of new shares, and one self defense, among many others. Items listed in non-operating cash flow are generally non-recurring.

Non-operating cash flow appears on a company’s cash flow statement and is generally divided into two sections: cash flow from investment and cash flow from financing.

Cash flow from investment

This section usually contains the capital expenditure (CapEx), increases and decreases in investments, cash paid acquisitions, and the cash proceeds from the sale of assets.

Cash flow from financing

This section usually contains the products and payments made on short term loan and long-term debt; and the proceeds from the issue of shares, repurchase of ordinary shares, or dividend payments.

Non-operating cash flow in action

Non-operating cash flow can demonstrate how a business uses its FCF – essentially, operating cash flow less CapEx – or how it finances its investing activities if it does not have (or enough) free cash flow.

For example, suppose a company generated $ 6 billion in operating cash flow in its fiscal year and made capital expenditures of $ 1 billion. He has a substantial FCF of $ 5 billion left. The company can then choose to use the $ 5 billion to make an acquisition (cash outflow). This would appear in the section of cash flow from investments. The company could also issue $ 2 billion worth of ordinary actions (cash inflow) and pay $ 2 billion in dividends (cash outflow). Both of these would appear in the section on cash flows from financing.

Suppose, however, that the company’s FCF is only $ 2 billion, and the company has already committed to acquire another company for $ 1 billion (cash outflow). This would appear in the section of cash flow from investments. If the company also committed to paying $ 2 billion in dividends (cash outflow), it could borrow an additional $ 1 billion in long-term debt (cash inflow). Both of these would appear in the section on cash flows from financing.

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