Cash Flow From Investing Activities
What Is Cash Flow From Investing Activities?
Cash flow from investing activities (CFI) is one of the sections on the cash flow statement that reports how much cash has been created or spent from different investment-related activities in a specific period. Investing activities incorporate purchases of physical assets, investments in securities, or the sale of securities or assets.
Negative cash flow is much of the time indicative of a company's poor performance. Be that as it may, negative cash flow from investing activities may be due to critical amounts of cash being invested in the long-term wellbeing of the company, like research and development.
Figuring out Cash Flow From Investing Activities
Prior to examining the various types of positive and negative cash flows from investing activities, it's important to survey where a company's investment activity falls inside its financial statements. There are three principal financial statements: the balance sheet, income statement, and cash flow statement.
The balance sheet gives an outline of a company's assets, liabilities, and proprietor's equity starting around a specific date. The income statement gives an outline of company incomes and expenses during a period. The cash flow statement overcomes any barrier between the income statement and the balance sheet by showing how much cash is produced or spent on operating, investing, and financing activities for a specific period.
Types of Cash Flow
Overall, the cash flow statement gives an account of the cash utilized in operations, including working capital, financing, and investing. There are three sections-marked activities-on the cash flow statement.
Cash Flow From Operating
Operating activities incorporate any spending or wellsprings of cash that are engaged with a company's everyday business activities. Any cash spent or created from the company's products or services is listed in this section, including:
- Cash received from the sale of goods and services
- Interest payments
- Salary and wages paid
- Payments to providers for inventory or goods required for creation
- Income tax payments
Cash Flow From Financing
Cash produced or spent on financing activities shows the net cash flows engaged with funding the company's operations. Financing activities include:
- Dividend payments
- Stock repurchases
- Bond contributions creating cash
Cash Flow From Investing
Cash flows from investing activities give an account of cash utilized in the purchase of non-current assets- or long-term assets-that will deliver value from now on.
Investing activity is an important part of growth and capital. A change to property, plant, and equipment (PPE), a large detail on the balance sheet, is considered an investing activity. At the point when investors and analysts need to know how much a company spends on PPE, they can search for the sources and uses of funds in the investing section of the cash flow statement.
Capital expenditures (CapEx), likewise found in this section, is a well known measure of capital investment utilized in the valuation of stocks. An increase in capital expenditures means the company is investing in later operations. Nonetheless, capital expenditures are a reduction in cash flow. Commonly, companies with a lot of capital expenditures are in a state of growth.
Below are a couple of instances of cash flows from investing activities along with whether the things create negative or positive cash flow.
- Purchase of fixed assets- cash flow negative
- Purchase of investments, for example, stocks or securities-cash flow negative
- Lending money-cash flow negative
- Sale of fixed assets-cash flow positive
- Sale of investment securities-cash flow positive
- Assortment of loans and insurance proceeds-cash flow positive
On the off chance that a company has differences in the values of its non-current assets from one period to another (on the balance sheet), it could mean there's investing activity on the cash flow statement.
Illustration of Cash Flow From Investing Activities
Below is the cash flow statement from Apple Inc. (AAPL) as per the company's 10-Q report issued on June 29, 2019.
The three sections of Apple's statement of cash flows are listed with operating activities at the top and financing activities at the lower part of the statement (featured in orange). In the center, are the investing activities (featured in blue).
Investing activities that were cash flow negative are featured in red and include:
- Purchases of marketable securities for $21.9 billion
- Payments acquiring property, plant, and equipment for $7.7 billion
- Payments for business acquisitions and non-marketable securities
Investing activities that were cash flow positive are featured in green and include:
- Proceeds from maturities of marketable securities for $26.7 billion
- Proceeds from the sale of marketable securities for $49.5 billion
The net cash flows produced from investing activities were $46.6 billion for the period ending June 29, 2019. Overall Apple had a positive cash flow from investing activity notwithstanding spending almost $8 billion on new property, plant, and equipment.
Similarly as with any financial statement analysis, it's best to break down the cash flow statement in tandem with the balance sheet and income statement to get a complete image of a company's financial wellbeing.
- Cash flow from investing activities is a section of the cash flow statement that shows the cash created or spent connecting with investment activities.
- Negative cash flow from investing activities probably won't be a terrible sign on the off chance that management is investing in the long-term strength of the company.
- Investing activities incorporate purchases of physical assets, investments in securities, or the sale of securities or assets.
How Do You Calculate Cash Flow From Investing Activities?
Think about a theoretical illustration of Google's net annual cash flow from investing activities. For the year, the company burned through $30 billion on capital expenditures, of which the majority were fixed assets. Along with this, it purchased $5 billion in investments and burned through $1 billion on acquisitions. The company likewise realized a positive inflow of $3 billion from the sale of investments. To ascertain the cash flow from investing activities, the sum of these things would be added together, to show up at the annual figure of - $33 billion.
Why Is Cash Flow From Investing Activities Important?
Cash flow from investing activities is important in light of the fact that it shows how a company is dispensing cash as long as possible. For example, a company might invest in fixed assets like property, plant, and equipment to develop the business. While this signals a negative cash flow from investing activities in the short term, it might assist the company with producing cash flow in the longer term. A company may likewise decide to invest cash in short-term marketable securities to assist with supporting profit.
What Activities Are Included in Cash Flow From Investing Activities?
The activities remembered for cash flow from investing actives are capital expenditures, lending money, and the sale of investment securities. Along with this, expenditures in property, plant, and equipment fall inside this category as they are a long-term investment.