Dividend paid by a company to its shareholder is classified as which type of activity under cash flow statement?
Dividend paid by a company to its shareholder is classified as which type of activity under cash flow statement?
Solution
Dividend paid by a company to its shareholders is classified under Cash flow from financing activities.
A cash flow statement classifies cash flows into three categories:
Operating activities → Cash flows from primary revenue-generating activities (like sales, purchases, expenses)
Investing activities → Cash flows from purchase/sale of long-term assets (like machinery, investments)
Financing activities → Cash flows related to equity capital and borrowings
Dividend payment represents distribution of profits to shareholders, who are the providers of equity capital. Since it relates to changes in the company's equity structure and represents a return to equity holders, it falls under financing activities.
This is similar to how interest paid on loans (return to debt providers) and repayment of loans are also classified as financing activities.
Therefore, Option 3 is correct.
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