What Is Cash Flow From Investing Activities?

What Is Cash Flow From Investing Activities?

You need to know that cash flow from investing activities, or CFI, is a specific section on a company's cash flow statement. It shows exactly how much cash the company has generated or spent on investment-related activities over a particular period.

These investing activities cover things like buying physical assets, putting money into securities, or selling those securities or assets. Remember, these investments can produce income or support the company's long-term health and performance.

Key Takeaways

Let me be clear: cash flow from investing activities is just one part of the business's cash flow statement. It includes the purchase of physical assets, investments in securities, or the sale of those securities or assets. The total cash flow from investing for an accounting period is simply the sum of all positive and negative investing activities listed there.

Cash Flow Statements

Every business uses three main financial statements: the balance sheet, the income statement, and the cash flow statement. The balance sheet gives you an overview of the company's assets, liabilities, and owners' equity as of a specific date. The income statement covers revenues and expenses during a period.

The cash flow statement connects the income statement and balance sheet by detailing how much cash is generated or spent on operating, investing, and financing activities for that period. It accounts for cash used in operations, including working capital, financing, and investing. You'll see three sections: cash flow from investing activities, from operating activities, and from financing activities.

Important Note on Investing Activities

Investing activities can result in either negative or positive cash flow. When you purchase something, you're spending money, which creates negative cash flow. On the other hand, sales bring in income, leading to positive cash flow.

Investing Activities in Detail

Cash flows from investing activities track the cash used to buy non-current assets, which are long-term assets expected to deliver value in the future. This is crucial for growth and capital management. A change in property, plant, and equipment—often a big item on the balance sheet—counts as an investing activity. If you want to see how much a company spends on PPE, check the investing section of the cash flow statement for sources and uses of funds.

You'll also find capital expenditures, or CapEx, in this section. This is a key measure for valuing stocks. An increase in CapEx shows the company is investing in future operations, but it reduces cash flow. Companies with high CapEx are usually growing.

Operating Activities and Financing Activities

Beyond investing, there are cash flows from operating and financing activities. Operating activities involve any inflow or outflow from the company's daily operations. This includes cash from selling goods, interest payments, employee salaries, inventory payments, or income tax payments.

Financing activities show net cash flows for funding operations, like dividend payments, stock repurchases, or bond offerings that generate cash.

Tip for Analysis

You should analyze the cash flow statement alongside the balance sheet and income statement to get a full view of the company's financial health.

Example from Apple Inc.

Take Apple's cash flow statement from their 10-Q report issued on Nov. 2, 2023. It has three sections: operating at the top, financing at the bottom, and investing in the middle.

Negative cash flow investing activities included purchases of marketable securities for $29.52 billion, payments for property, plant, and equipment for $10.96 billion, and other for $1.34 billion. Positive ones were proceeds from maturities of marketable securities for $39.69 billion and from sales of marketable securities for $5.83 billion.

Net cash flows from investing were $3.71 billion positive for the twelve months ending Sept. 30, 2023. Even with nearly $30 billion spent on securities, Apple ended up with positive cash flow from investing.

How Does Negative Cash Flow From Investing Differ From General Negative Cash Flow?

Generally, negative cash flow might signal poor performance, but in investing activities, it could mean the company is putting significant cash into long-term health, like research and development. This might cause short-term losses but lead to major growth later.

How Is Cash Flow From Investing Activities Calculated?

Suppose a company spends $30 billion on capital expenditures, mostly fixed assets, plus $5 billion on investments and $1 billion on acquisitions, but gains $3 billion from selling investments. The sum gives you -$33 billion in cash flow from investing.

Why Is Cash Flow From Investing Activities Important?

It reveals how a company allocates cash for the long term. For example, investing in fixed assets like property, plant, and equipment can grow the business. This creates negative cash flow short-term but may generate more cash long-term.

The Bottom Line

The cash flow statement is one of three key financial reports in an accounting period, and its investing activities section can show positive or negative flows. Negative flows might indicate investments in assets or development crucial for the company's ongoing health and operations.