[Summary]
Financial cash flow is an item that shows how a company raises funds through borrowings, repayments, dividends, share buybacks, etc., and how it returns money to shareholders. If it is positive, there will be a lot of funding, and if it is negative, there will be a lot of repayments and returns. However, it is dangerous to simply judge that a positive rating means you are safe and a negative rating means you are excellent. By looking at this together with operating cash flow and investment cash flow, it becomes easier to see the actual cash flow situation. This article is an explanation for educational purposes and is not intended to recommend any particular stock.
First, the conclusion
Financial cash flow is an indicator that measures how a company collects and returns money.
If you raise funds through borrowings, bond issues, and capital increases, your stock will likely become positive, and if you proceed with debt repayments, dividends, and share buybacks, your stock will likely become negative.
Therefore, it is important to read the background of why the funds were raised, why they were returned, along with the operating cash flow and investment cash flow, rather than deciding whether the funds are good or bad based on the sign of the numbers alone.
How it works
The cash flow statement mainly consists of the following three parts:
| classification | what to show | Typical example |
|---|---|---|
| Operating cash flow | Ability to earn cash from your main job | Product sales, service provision, purchasing and expense payments |
| investment cash flow | movement to use cash for the future | Capital investment, M&A, securities acquisition, asset sales |
| financial cash flow | Trends in financing, repayments, and shareholder returns | Borrowing, repayment, dividends, share buybacks, capital increase |
Of these, financial cash flow represents how much money a company has raised from outside, or how much has been used for repayment or return.
| Transaction details | Impact on financial cash flow | How to read |
|---|---|---|
| borrowed from a bank | Plus | increasing cash on hand |
| repaid the loan | Minus | reducing financial burden |
| paid dividends | Minus | Cash is disbursed as shareholder returns |
| bought back its own shares | Minus | Promoting shareholder returns and improving capital efficiency |
| increased capital | Plus | Raising funds by issuing shares |
Specific example
Even the same plus and minus have very different meanings.
| case | financial cash flow | Common background | how to see it |
|---|---|---|---|
| Procurement type | Plus | Borrowing, bond issuance, capital increase | They may be collecting funds for growth investment or cash flow measures. |
| Rebate/repayment type | Minus | Debt repayments, dividends, share buybacks | There is a possibility that surplus energy is used for repayments and shareholder returns. |
Positive case for financing
Before and after constructing a new factory or making a large investment, financing cash flow may become positive through borrowing or issuing bonds.
| Item | amount |
|---|---|
| Operating cash flow | +8 billion yen |
| investment cash flow | -22 billion yen |
| financial cash flow | +17 billion yen |
In this case, it can be interpreted that the cash earned from the main business is not enough to cover the investment, and the shortfall is made up with external funds. This is not unnatural if it is a growth investment, but it is necessary to separately confirm whether the investment will be recovered.
Cases where repayments and shareholder returns are negative
On the other hand, mature companies and companies with stable profits may have negative financing cash flows due to debt repayments, dividends, and share buybacks.
| Item | amount |
|---|---|
| Operating cash flow | +25 billion yen |
| investment cash flow | -6 billion yen |
| financial cash flow | -14 billion yen |
In this case, the company may have surplus cash earned from its main business, and may be using some of it for repayment or shareholder returns. If you look at the numbers alone, it's negative, but depending on the details, it can be read positively.
Points to see
Balance with operating cash flow
The first thing you want to check when reading financial cash flow is whether your business is generating enough cash. If operating cash flow is weak but financing cash flow continues to be positive, there is a possibility that the company's dependence on borrowings is increasing.
Purpose of funding
Even if there is a borrowing or capital increase, the evaluation will differ depending on whether it is for growth investment, deficit compensation, or maintaining cash flow. It should be read in conjunction with investment cash flow and profit status, rather than financial cash flow alone.
Sustainability of shareholder returns
Even if financial cash flow is negative due to dividends and share buybacks, it is relatively stable as long as it is within the range of operating cash flow. On the other hand, if you continue to return money while increasing borrowings, you need to be careful about sustainability.
Look at multiple years instead of a single year
Funding and repayments vary greatly from year to year, so it's easy to misunderstand if you judge based on just one year. By lining up your finances over several years, it becomes easier to see whether you are continually relying on borrowings or whether the investment phase is temporary.
Points to note
When looking at financial cash flows, be careful of the following misconceptions:
| common misconceptions | actual view |
|---|---|
| Don't worry because it's a plus | It may just be an increased reliance on borrowing and capital increases. |
| Dangerous because it is negative | Borrowing repayments, dividends, and stock buybacks may be positive. |
| The higher the dividend, the better. | Returns that exceed the earning power of the main business are difficult to sustain. |
| It is enough to look at just one year | Multi-year comparisons are important as there are large fluctuations in the investment and repayment phases. |
action steps
If you are a beginner and want to check it out, the following order is easy to understand.
| order | Check items | Reason to watch |
|---|---|---|
| 1 | Is operating cash flow stable? | Understand whether the source of the repayment or refund comes from your main business. |
| 2 | Is financial cash flow positive or negative? | You can understand whether you are in the financing phase or the repayment/return phase. |
| 3 | Breakdown of borrowings, dividends, and share buybacks | You can see exactly what the cash was used for |
| 4 | Trends over the years | Easy to distinguish between temporary causes and continuing trends |
Summary
Financial cash flow is an important item that shows whether a company is raising funds through borrowings and capital increases, or whether the funds are being used for repayments and shareholder returns. Even if the debt is positive, there is a view that the dependence on borrowing is increasing, and even if the debt is negative, there are positive cases where repayments and returns are progressing.
The important thing is to check how much cash you are generating from operating cash flow, how it is connected to investment cash flow, and whether repayments and returns are within a reasonable range.