Dividend paid by a company to its shareholder is classified as which type of activity under cash flow statment?

The correct option is Cash flow from financing activities.

To understand why this is the correct classification, let us break down the components of a Cash Flow Statement:

1. Operating Activities: These are the principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities. They generally involve cash flows associated with net income (such as receipts from sales, payments to suppliers, etc.).

2. Investing Activities: These represent the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Examples include purchasing property, plant, equipment, or purchasing shares of other companies.

3. Financing Activities: These are activities that result in changes in the size and composition of the contributed equity and borrowings of the enterprise. Financing activities involve interactions between the company and its providers of capital (both debt and equity).

When a company pays dividends to its shareholders, it is distributing a portion of its earnings back to its equity capital providers. Since dividends are payments made to the owners of the company (shareholders) who provided equity financing, this transaction directly affects the equity capital structure of the company. Therefore, dividend paid is classified under Cash flow from financing activities.