The three major forms of business activities are financing, investing and operating.
Business activities
are essentially activities done in business. Any activity done in business is
directed at one thing—profit making. Therefore “Business activities” is a
general term used in the description of all the economic-related activities in
which a company gets involved in the course of their business.
The three major forms
of business activities are financing, investing and operating. These activities
have to do with the the flow of money. However, the essence of the money will
determine the category under which the money is grouped. It is essential to
understand how to look at every transaction and identify what type of activity
under which every action in business will be grouped. On the overall, these
activities have the ultimate target of creating value for shareholders.
The cash flows that
each of these activities create will be recorded under its own segment of the
annual report in the financial statement called the cash flow statement.
The Three Forms of
Business Activities Explained
Financing Activities
Financing activities are
transactions that have to do with individual customer financing and/or
financing the company. Transactions such as loans, credit transactions, debt
financing, secondary offerings and initial public offerings fall under this
category. Dividends, stock repurchases as well as interest also belong here. In
fact, any business activity that has to do with fundraising or financing will
be found here.
These activities will be
recorded under the section of the Statement of Cash Flows that has to do with
financing activities.
Investing Activities
Investing transactions
are business activities that have to do with the long-term use of cash. These
kinds of activities are not under the usual daily operations of the company and
are used to refer to activities that have to do with investments. These are
business activities capitalized over the space of at least a year. It also
involves the purchase of long-term assets. If it has to do with investing into
something, then it is referred to as “the use of cash” under this category. If
it has to do with dividends from investment or the sale of real estate, then it
is referred to as a source of cash. Generally, purchase of land, property or
equipment of value fall under this category.
Small term investments
would be considered obviously, but any loans made to customers or other
entities would also be considered an investing transaction. Dividends and
interest earned on investments would also qualify under the investing category
for Statement of Cash Flows.
Operating Activities
As the name connotes,
operating activities has to do with the various business practices done by a
company on a daily basis. This involves things ranging from paying for running
costs to paying employees’ salaries. Delivery cost and product cost are also
basic activities to e classified under the operating activities of a company.
It also has to do with all expenditures made
to keep the company running. The sales and income accrued from operations also
fall under the operation section of the paper work.
