What is ‘Cash Flow From Investing Activities’

Cash flow from investing activities is an item on the cash flow statement that reports the aggregate change in a company’s cash position resulting from investment gains or losses and changes resulting from amounts spent on investments in capital assets, such as plant and equipment.

When analyzing a company’s cash flow statement, it is important to consider each of the various sections that contribute to the overall change in its cash position. Negative cash flows are not always indicative of poor performance.  Often, firms have negative overall cash flows for a period because of heavy investment expenditures.

BREAKING DOWN ‘Cash Flow From Investing Activities’

There are three main financial statements: the balance sheet, income statement, and cash flow statement. The balance sheet provides an overview of a company’s assets, liabilities, and owner’s equity as of a specific date. The income statement provides an overview of company revenues and expenses during a period. The cash flow statement bridges the gap between these two statements by showing analysts how much cash is generated or spent on operating, investing, and financing activities for a specific period (e.g., annual).

Cash Flow Types

The cash flow statement gives an account of the cash used in operations, including working capital, financing, and investing. Cash flow from financing gives an account of cash used in financing activities, such as dividend payments, stock repurchases, or bond offerings. Cash flow from investing provides an account of cash used in the purchase of non-current assets that will deliver value in the future.

Cash Flow From Investing

Cash flow from investing activities is an important aspect of growth and capital. Changes to property, plant, and equipment (PPE), a large line item on the balance sheet, are accounted for here. When analysts want to know how much a company spends on PPE, they can look for the sources and uses of funds in the investing section of the cash flow statement.

Capital expenditures (capex), also found in this section, is a popular measure of capital investment used in the valuation of stocks. An increase in capital expenditures means the company is investing in future operations; however, it also points to a reduction in cash flow.  Companies with high capital expenditures are generally in a state of growth.

Examples of negative cash flow from investing activities include the purchase of fixed assets, the purchase of investment instruments (e.g., stocks),  and lending money. Examples of positive cash flow from investing include the sale of fixed assets, the sale of investment instruments, and the collection of loans and insurance proceeds.