Which of the following items would least likely be included in cash flow from financing?

CFA Level I FRA
#1

Hi everyone,
Here are the answers:
A)Gain on sale of stock of a subsidiary.
B) Purchase of treasury stock.
C) Dividends paid to shareholders.

So the correct answer is A. Gains and losses are found in cashflow from investments. However, i don’t get how purchasing a treasury stock is by any mean a “cash flow from financing”. To me it is investing. Can someone please help?

#2

When you issue stock you get a cash inflow from financing.

When you repurchase that stock you get a cash outflow from financing.

1 Like
#3

Thanks S2000magician!

#4

Hi!
The purchase of treasury stock is basically a share buyback, wherein, outstanding shares of the company fall which in turn gets reflected in the balance sheet as a decrease in common stock under “Shareholders Equity”. As a result, the company uses excess cash or borrows to finance this buyback and hence, it is an outflow of cash from financing activities. Please correct me if I am wrong.
Thanks and good luck!