What is Financing Cash Flows?
Financing cash flows are the inflows and outflows associated with how a business is funded, capturing capital raised from owners and lenders alongside repayments and distributions made to them, reported as a separate section of the IAS 7 cash flow statement.
How It Works
- Inflows: equity issuances, bank loan drawdowns, sukuk proceeds, lease liability inceptions.
- Outflows: dividends paid, share buybacks, loan principal repayments, lease principal payments.
- Interest paid can sit in operating or financing, depending on accounting policy.
- Non-cash financing (debt-for-equity swaps) is disclosed in the notes only.
Saudi Context
Saudi joint-stock companies routinely raise capital through SAMA-supervised bank facilities, sukuk listed on Tadawul, or Tier-1 capital instruments. Dividends paid require Capital Market Authority approval for listed companies and trigger ZATCA withholding tax obligations on non-resident shareholders, both flagged in the financing section.
Example
A Saudi manufacturer issues SAR 50,000,000 in sukuk, repays SAR 12,000,000 of an existing loan, and pays SAR 8,000,000 in dividends during the year. Net financing cash flow = 50,000,000 – 12,000,000 – 8,000,000 = SAR 30,000,000 inflow.