A loan's principal is the balance owed on the loan. When a company makes a principal payment to pay down the balance of a loan, it reports the amount of the payment on its cash flow statement. This is separate from the interest it may pay on a loan. The principal payment reduces the cash a company holds, but does not affect its profit, as the payment is not part of its operating expenses. A company can benefit from making principal payments on its loans because the payment reduces its debt, which reduces its interest expense.
Find a company's cash flow statement in either its 10-Q quarterly reports or in its 10-K annual reports. You can obtain these reports from the investor relations section of a company's website or from the U.S. Securities and Exchange Commission's EDGAR online database.
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Find the "Cash Flows from Financing Activities" section, which is the last section of the cash flow statement.
Look for the line containing the description "Repayment on Debt," or "Payment of Loan Principal."
Identify the dollar amount, listed to the right of the description. A company encloses this amount in parentheses to show that the amount reduces its cash. For example, if a company's cash flow statement shows "Payment of Loan Principal ($5,000)," the company paid $5,000 toward the principal balance of its debt, which means it owes $5,000 less than it did before.
Monitor a company’s principal payments over different accounting periods. A company that pays down its loan balances has less debt, which reduces its risk to stockholders.