Final answer:
Cash flows from financing activities include cash transactions related to a business's external financing, which can involve issuing stock, paying dividends, or obtaining and repaying debt. These activities are distinct from operating and investing activities and can affect the company's capital structure and future financial potential.
Step-by-step explanation:
The student's question relates to a specific section of financial reporting that deals with the classification of cash flows. The missing term in the sentence '(Ch. 11)Cash flows from ___________ activities include both inflows and outflows of cash from the EXTERNAL financing of a business' is 'financing'. Cash flows from financing activities reflect transactions with owners and creditors that include issuing and buying back shares, paying dividends, and obtaining or repaying debt capital. This contrasts with cash flows from operating activities, which relate to the core business activities, and cash flows from investing activities, which are related to acquisitions and disposals of long-term assets.
Firms often have choices in how to raise financial capital, which may include early-stage investors, reinvesting profits, borrowing through banks or bonds, and selling stock. The selection of financial capital sources has implications for the company's capital structure and future earnings potential. It is also worth noting that these activities operate within larger capital markets that facilitate the flow of financial capital across borders through investments in real estate, companies, and financial instruments like stocks and bonds.