Non-Operating Cash Flow

What Is Non-Operating Cash Flow?

Non-operating cash flow is a key measurement in fundamental analysis that is contained cash inflows (that a company takes in) and cash outflows (that a company pays out), which are not connected with a company's operating activities. All things considered, these sources and uses of cash are associated with a company's investing or financing activities. Non-operating cash flow appears in a company's cash flow statement.

Non-operating cash flow is important in light of the fact that it can help analysts, investors, and companies themselves to measure how really a firm deals with its free cash flow (FCF), how fruitful it is in investing its revenue or earnings, or to determine other essential indicators, for example, a company's cost of capital.

Grasping Non-Operating Cash Flow

Non-operating cash flow is contained the cash a company takes in and pays out that comes from sources other than its everyday operations. Instances of non-operating cash flow can incorporate applying for a new line of credit, issuing new stock, and a self-tender defense, among numerous others. Things listed under non-operating cash flow are normally non-repeating.

Non-operating cash flow shows up on a company's cash flow statement and is normally broken into two sections: cash flow from investing and cash flow from financing.

Cash Flow From Investing

This section as a rule contains a company's capital expenditures (CapEx), increments and diminishes in investments, cash paid for acquisitions, and cash proceeds from the sale of assets.

Cash Flow From Financing

This section for the most part contains proceeds from and payments made on short-term borrowing and long-term debt; and proceeds from equity issuance, repurchase of common stock, or dividend payments.

Non-Operating Cash Flow in real life

Non-operating cash flow can show how a company utilizes its FCF — essentially, operating cash flow less CapEx — or how it finances its investing activities on the off chance that it doesn't have any (or adequate) free cash flow.

For instance, assume a company has produced operating cash flow of $6 billion in its fiscal year and has made capital expenditures of $1 billion. It is left with substantial FCF of $5 billion. The company can then decide to utilize the $5 billion to make an acquisition (cash outflow). This would show up in the cash-flow-from-investing section. The company likewise could issue $2 billion of common stock (cash inflow) and pay $2 billion in dividends (cash outflow). Both of these would show up in the cash-flow-from-financing section.

Assume, however, that the company's FCF is just $2 billion, and the company was at that point committed to procuring one more company for $1 billion (cash outflow). This would show up in the cash-flow-from-investing section. In the event that the company likewise committed to paying $2 billion in dividends (cash outflow), it could borrow an extra $1 billion in long-term debt (cash inflow). Both of these would appear in the cash-flow-from-financing section.

Features

• Non-operating cash flow is involved cash inflows and outflows that are not connected with a company's everyday business operations.
• Non-operating cash flow shows up in a company's cash flow statement in either the cash-flow-from-investing or cash-flow-from-financing section.
• This key fundamental measurement can assist analysts with determining how really a firm deals with its free cash flow or effectively contributes its revenue or earnings.