From the course: Financial Modeling and Forecasting Financial Statements
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Financing cash flow
From the course: Financial Modeling and Forecasting Financial Statements
Financing cash flow
- The two sources of cash from financing activities are borrowing and owner investment. The most desirable sequence of decision-making with respect to cash from financing activities is as follows. First, forecast the level of activity, such as the level of sales. Second, evaluate the amount of cash that will be generated from or consumed by operating activities. After a careful capital budgeting process, determine the amount of cash that will be needed for investing activities, and if financing cash inflows are needed, compare the relative costs of obtaining cash from borrowing and cash from owner investment. As a general statement, the interest rate cost of borrowing money is lower than the cost of giving up ownership of part of the company in exchange for new partner investment or new shareholder investment. The exact decision this year of whether it's best to obtain financing cash inflow from borrowing or…
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