Non-Operating Cash Flows

Non-operating cash flows are inflows and outflows of cash that are not related to the day-to-day, ongoing operations of a business. These cash flows are associated with cash flows from investing and cash flows from financing on a company's statement of cash flows.

A company's statement of cash flows is broken down into three main sections: cash flows from operations, cash flows from investing and cash flows from financing. Cash flows from operations start with net income and then add or subtract depreciation and amortization and changes in working capital components including accounts receivable, accounts payable, inventories and accrued liabilities. The section of operating cash flows will have other adjustment items, depending on the company.

Non-operating cash flows are part of the other two sections of the cash flow statement. The first non-operating cash flow section is cash flows from investing. The principal items included in this section are capital expenditures, increases and decreases in investments, cash paid for acquisitions and cash proceeds from asset sales. The second non-operating cash flow section is cash flows from financing. The major line items are proceeds from short-term borrowings, payments of short-term borrowing, proceeds from long-term debt, payments of long-term debt, proceeds from the issuance of equity, repurchases of common stock, and payments of dividends.

Non-operating cash flows demonstrate how a company uses its operating cash flows each period and how it deploys free cash flows (basically, operating cash flows less capital expenditures), or how it finances its investing activities if it does not have any free cash flow (FCF) or sufficient FCF.

For example, suppose a company has operating cash flows of $6 billion in its fiscal year and capital expenditures of $1 billion. It is left with substantial FCF of $5 billion. The company can then choose to use the $5 billion to make an acquisition, which would appear in the cash flows from investing section, repurchase $2 billion of common stock and pay $2 billion in dividends, which would both appear in the cash flows from financing section. Suppose, though, that FCF was only $2 billion and the company was committed to buying another company for $1 billion and paying $2 billion in dividends. It could borrow $1 billion in long-term debt, which would show up in the cash flows from financing section.