Cash flow from investing activities typically refers to the cash generated in a company by making or selling investments and/or earning from investments.
Cash flow from investing activities is a major component of the cash flow statement. The cash flow statement is one of the four annual financial statements prepared by companies at the end of the year.
Cash flow from investing activities involves the amount invested in fixed assets and in long-term securities (cash outflow), and the amount realized from the sale of these items (cash inflow).
These financial statements systematically present the financial performance of the company throughout the year.
The income statement reports the revenue and expenditure of a company during a specific period, while the balance sheet reports the assets, liabilities, and capital.
Similarly, the statement of cash flow portrays the company's net cash flow for a certain financial period.
It provides insight into all the cash that enters and leaves the business through its operating, investing, and financing activities.
Cash flow from investing activities comprises all the transactions that involve buying and selling non-current assets, from which future economic benefits are expected. In other words, such assets are expected to deliver value and benefits in the long run.
On CFS, investing activities are reported between operating activities and financing activities. The sum of all three results in the net cash flow of the company for the year.
The format of a cash flow statement is as follows:
Cash Flow From Operating Activities
This section reconciles the net profit to net cash flow from operating activities by adjusting items on the income statement that are non-cash in nature.
For example, depreciation is added back and income receivable is reduced.
Cash Flow From Investing Activities
Cash flow from investing (CFI) activities comprises all the cash purchases and disposals of non-current assets that produce benefits for the company in the long run.
Usually, when companies expand they invest in property, plant, and equipment (PPE), and investors or shareholders of the company can easily find all these transactions in the CFI section of the cash flow statement.
This section also mentions any cash spent on purchases of stocks in other companies from which dividends are earned.
Examples of investing activities include:
It's important to keep in mind that investing activities do not include any dividends paid, debts acquired, equity financing, and interest earned or paid.
Cash Flow from Financing Activities
Cash flow from financing activities includes cash transactions that increase or decrease a company's equity and/or liabilities.
It typically includes issuing and buying back shares, acquiring loans, and paying dividends.
In this example, we consider Walmart Inc.’s statement of cash flows for the year 2019.
As you'll see below, the statement is separated into three parts, where investing activities come in between operating activities and financing activities.
In CFI, Walmart has three negative cash flows, namely:
At the same time, there were two positive cash flows in investing activities as follows:
As the statement of cash flows indicates, Walmart made a significant capital expenditure in 2019 since it has a net cash outflow of $24,036 million in investing activities.
The net cash used in investing activities was calculated by subtracting the positive cash flow of $1,395 million from the negative cash flow of $25,431 million.
Even though the cash flow from investing activities offers a clear picture of a company’s investments, it's necessary to consider both the income statement and balance sheet to get a better understanding of its financial position.
Cash Flow From Investing Activities is one of the categories of cash flow.
Learn more about Cash Flow from Operating Activities in this article: Cash Flow From Operating Activities
There are four main components in this section of a Cash Flow statement: Cash paid for property, plant, and equipment (PPE), Cash paid for investments in marketable securities, Cash received from sale of PPE and Cash received from sale or maturity of marketable securities.
The CFI section of a company’s statement of Cash Flows includes cash paid for PPE. However, in the operating activities section of its Cash Flow statement, it includes the Depreciation expense that appears on its income statement under income from continuing operations.
This section is divided into two parts: Cash Flows that decrease or increase a company’s assets and liabilities, and Cash Flows related to the disposal of assets.
In accounting, investment activities refer to the purchase and sale of long-term assets and other business investments, within a specific reporting period. The results of a company’s reported investing activities give insights into its total investment gains and losses during a defined period.
Negative Cash Flow from investing activities means that a company is investing in capital assets. As the value of these assets increases, the amount of net Cash Flow available to the company over time increases.
About the Author
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
Finance Strategists has an advertising relationship with some of the companies included on this website. We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own.
Content sponsored by 11 Financial LLC. 11 Financial is a registered investment adviser located in Lufkin, Texas. 11 Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. 11 Financial’s website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links.
For information pertaining to the registration status of 11 Financial, please contact the state securities regulators for those states in which 11 Financial maintains a registration filing. A copy of 11 Financial’s current written disclosure statement discussing 11 Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from 11 Financial upon written request.
11 Financial does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to 11 Financial’s website or incorporated herein, and takes no responsibility therefor. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
© 2024 Finance Strategists. All rights reserved.
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it.
