Dividends Paid, Lease Liability Payments & Cash Flow

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Dividends Paid

In recasting cash flow statements the dividends paid (& dividends received) items are removed from cash flows from investing (CFFI) and put it into cash flows from operations (CFFO).

This, of course usually reduces the CFFO's figure and increases the CFFI one.

The reason is because dividends paid are a cost of funding equity. Like interest payments on interest bearing debt which appear in CFFO under NZ GAAP, dividends are the price paid for the use of one type of capital, namely equity.

This is not the way dividends paid are recorded under IFRS but it is a more accurate way of describing CFFO which is a critical figure in cash flow statements.

Lease Liability Payments (for analyses after 15th October, 2022)

Lease liability payments appear under cash flow from financing (CFFF) in accounts which is correct under NZ GAAP. However, they are recast under operating cash flow because IFRS 16 is a specific construct to recognise leases in financial accounts.

The approach may be okay for the balance sheet but it definitely gives a distorted picture of operating cash flows in the cash flow statement.

For example, rent payments that are made by a retail company are part of operations but under IFRS 16 they are reconstructed into a financing item. This gives a distorted and not a true and fair view of the rental transaction.

The recasting of leases liability payments increases net cash flow from financing and reduces net cash flow from operations.