Financing activity in a cash flow statement focuses on how a firm raises capital and pays it back to investors through capital markets. This section of the cash flow statement measures the flow of cash between a firm and its owners and creditors. Analyzing the cash flow statement is extremely valuable because it provides a reconciliation of the beginning and ending cash on the balance sheet. This analysis is difficult for most publicly traded companies because of the thousands of line items that can go into financial statements. Like all cash flow, CFI is the net amount of cash flow for a specific time (accounting period). It comprises all the transactions of buying and selling non-current assets and marketable securities.

Any changes in current assets (other than cash) and current liabilities (other than debt) affect the cash balance in operating activities. It is essential to carefully identify and record investing activities accurately in financial statements to provide stakeholders with a true representation of a company’s financial situation. By doing so, companies can demonstrate transparency, accountability, and effective use of resources, ultimately driving growth and success. Investing activities are a crucial part of a company’s accounting framework, and understanding them is essential for any accountant or business professional.

Others treat interest received as investing cash flow and interest paid as a financing cash flow. For example, a company might be investing heavily in plant and equipment to grow the business. These long-term purchases would be cash-flow negative, but a positive in the long-term. The purchase or sale of a fixed asset like property, plant, or equipment would be an investing activity. Also, proceeds from the sale of a division or cash out as a result of a merger or acquisition would fall under investing activities. To calculate cash flow from investing activities, add the purchases or sales of property and equipment, other businesses, and marketable securities.

  • Cash receipts obtained from disposal of the debt instruments of other business entities.
  • For the year, the company spent $30 billion on capital expenditures, of which the majority were fixed assets.
  • When a company engages in purchasing assets, it typically results in a cash outflow.
  • Investing in the right opportunities today can pave the way for financial success tomorrow—so take time to analyze, plan, and execute your investing activities wisely for the best outcomes.
  • The purchase or sale of a fixed asset like property, plant, or equipment would be an investing activity.

Cash flow from investing activities excludes certain transactions, despite their broad scope. These typically include short-term investments or cash equivalents, which are classified under operating activities. IFRSs, however, require such cash flows to be reported on a consistent basis from period to period. For a public company, it’s going to be nearly impossible to use the original balance sheet and cash flow statements to determine each item down to the specific dollar amount. When a company engages in purchasing assets, it typically results in a cash outflow. This is categorized under cash flows from investing activities in the cash flow statement.

📆 Date: June 28-29, 2025🕛 Time: 8:30-11:30 AM EST📍 Venue: OnlineInstructor: Dheeraj Vaidya, CFA, FRM

A negative financing activities number indicates when the company has paid out capital such as retiring or paying off long-term debt or making a dividend payment to shareholders. Negative overall cash flow isn’t always a bad thing if a company can generate positive cash flow from its operations. So there you have it, everything you need to know about cash flow from investing activities and more.

The Risks and Rewards of Investing Activities

David is comprehensively experienced in many facets of financial and legal research and publishing. As an Investopedia fact checker since 2020, he has validated over 1,100 articles on a wide range of financial and investment topics. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching.

Investing activities section of statement of cash flows

The distinction matters because investing activities showcase a company’s future growth potential, while operating activities reveal its current performance. Together, they provide a comprehensive picture of the business’s financial health, but they do so from different perspectives regarding time and strategic focus. In short, you’re investing significant amounts of cash into the long-term health of your company for the long-term gains of your operations. During the months of heavy investment and large purchases, a net negative cash flow will be reported in your cash flow from investing statement.

Suppose a company spent $30 billion on capital expenditures, of which the majority were fixed assets. It also purchased $5 billion in investments and spent $1 billion on acquisitions. The company realized a positive inflow of $3 billion from the sale of investments.

Kindred Healthcare paid a dividend but the equity offering and expansion of debt were larger components of financing activities. Kindred Healthcare’s executive management team had identified growth opportunities requiring additional capital and they positioned the company to take advantage through financing activities. CFI includes a whole range of investing activities that involve the cash purchases and disposals (selling) of non-current assets.

Treasury Management

  • The cash flow statement reports the cash generated and spent during a specific period of time (e.g., a month, quarter, or year).
  • These items are all listed in a cash flow statement, but can also be identified by comparing non-current assets on the balance sheet over two periods.
  • We sum up the three sections of the cash flow statement to find the net cash increase or decrease for the given time period.

Every business always tries to maintain a cash flow level that is positive, which means inflow is more than outflow. This typically means the return is more than the amount invested by the business. However, it is also to be noted that many big and well-established companies also have a negative investing cash flow, mainly because of heavy investments done, whose return will take some time.

A cash flow statement in a financial model in Excel displays both historical and projected data. Before this model can be created, we first need to have the income statement and balance sheet built in Excel, since that data will ultimately drive the cash flow statement calculations. Investing activities are those related to the acquisition, development, and disposal of non-current assets, as well as the lending of funds to other entities or entities. These activities aim to generate future cash inflows or improve the overall efficiency of the business. These items are all listed in a cash flow statement, but can also be identified by comparing non-current assets on the balance sheet over two periods. In this blog, we will focus on understanding cash investing activities flow statements by examining cash flow from investing activities, its components, examples, and how to calculate it.

Sam founded his first startup back in 2010 and has since been building startups in the Content Marketing, SEO, eCommerce and SaaS verticals. Sam is a generalist with deep knowledge of lead generation and scaling acquisition and sales. He finds the perfect new premises – fit for industrial use with a warehouse and office. His business has a 100k invested in a bike accessories business that hasn’t been performing particularly well. If you don’t have it, no stress as it’s fairly straightforward, and even if you do – it’s really important to understand how it’s done.

What Do Investing Activities Not Include?

Effective cash flow management encompasses more than a simple deduction from the inflow and outflow calculations. Developing efficient cash management is critical to growing healthy cash flow for any business. These approaches not only fortify the business during adversity but also improve cash visibility. Thus, for the year 2023, Hershey’s recorded a net cash flow from investing activities of -$1,198,676 thousand. As a seasoned financial expert with a deep understanding of cash flow and financial statements, let’s delve into the concepts introduced in the article about „Cash Flow From Investing Activities.”

There was no cash transaction even though revenue was recognized, so an increase in accounts receivable is also subtracted from net income. The items in the operating cash flow section are not all actual cash flows but include non-cash items and other adjustments to reconcile profit with cash flow. While each company will have its own unique line items, the general setup is usually the same. Proceeds obtained from the disposal of fixed assets such as property, plant and equipment.

Cash Flow from Investing Activities is the section of a company’s cash flow statement that displays how much money has been used in (or generated from) making investments during a specific time period. Investing activities include purchases of long-term assets (such as property, plant, and equipment), acquisitions of other businesses, and investments in marketable securities (stocks and bonds). Investing activities often refers to the cash flows from investing activities, which is one of the three main sections of the statement of cash flows (or SCF or cash flow statement). Investing activities refer to the purchase and sale of long-term assets and other investments that a company makes to generate future income. These activities are crucial for companies as they represent the capital expenditures that are expected to yield a return over time.

Reviewing CapEx, acquisitions, and investment activity are some of the most important exercises to see how efficiently a company’s management is using shareholder capital to run its operations. There are more items than just those listed above that can be included, and every company is different. The only sure way to know what’s included is to look at the balance sheet and analyze any differences between non-current assets over the two periods. Any changes in the values of these long-term assets (other than the impact of depreciation) mean there will be investing items to display on the cash flow statement. In this section of the cash flow statement, there can be a wide range of items listed and included, so it’s important to know how investing activities are handled in accounting.

The same can be said for long-term debt which gives a company flexibility to pay debt down or off over a longer period. Short-term debt can be more of a burden because it must be paid back sooner. A business can buy its own shares, increasing future income and cash returns per share. Repurchases are an attractive way to maximize shareholder value if executive management feels that shares are undervalued on the open market.