Final answer:
To determine cash flows from financing activities, examine changes in long-term liability and shareholders' equity accounts. Banks act as intermediaries in financial markets and use balance sheets to manage assets, liabilities, and bank capital, taking into account risks like asset-liability mismatches.
Step-by-step explanation:
To determine cash flows from financing activities, one needs to examine changes to long-term liability and shareholders' equity (SHE) accounts. This includes tracking the inflow of cash from the issuance of debt or equity and the outflow of cash used to repay debt, purchase treasury stock, or pay dividends. Their analysis is part of the statement of cash flows, which is a key financial statement that provides an aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given period.
The Role of Banks in Finance
Banks act as financial intermediaries in the capital markets, facilitating transactions between savers who supply financial capital and borrowers who demand loans. The balance sheet, or T-account, lists a bank's assets, including loans and reserves, and liabilities, such as deposits. The difference between the two represents the bank's net worth or bank capital. Banks manage risks of asset declines and asset-liability time mismatch by diversifying their loan portfolio and maintaining reserves and bonds.