Cash Flow From Investing Activities Explained: Types and Examples

Will Kenton is an expert on the economy and investing laws and regulations. He previously held senior editorial roles at Investopedia and Kapitall Wire and holds a MA in Economics from The New School for Social Research and Doctor of Philosophy in English literature from NYU.

Natalya Yashina is a CPA, DASM with over 12 years of experience in accounting including public accounting, financial reporting, and accounting policies.

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What Is Cash Flow From Investing Activities?

Cash flow from investing activities (CFI) is one of the sections of a company's cash flow statement. It reports how much cash has been generated or spent from various investment-related activities in a specific period.

Investing activities include purchases of physical assets, investments in securities, or the sale of securities or assets. Investments can be made to generate income on their own, or they may be long-term investments in the health or performance of the company.

Key Takeaways

• Cash flow from investing activities is a section of a business's cash flow statement that shows the cash generated by or spent on investment activities.
• Investing activities include the purchase of physical assets, investments in securities, or the sale of securities or assets.
• Negative cash flow from investing activities is not a bad sign if it indicates that management is investing in the long-term health of the company.
• The total cash flow from investing in an accounting period is found by adding together both positive and negative investing activities listed on the cash flow statement.

Understanding Cash Flow From Investing Activities

There are three main financial statements that a business uses: 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 the income statement and the balance sheet by showing how much cash is generated or spent on operating, investing, and financing activities for a specific period. Cash flow from investing activities is reported on the cash flow statement.

In general, negative cash flow can be an indicator of a company's poor performance. However, negative cash flow from investing activities is often different. It can indicate that significant amounts of cash have been invested in the long-term health of the company, such as research and development. While this may lead to short-term losses, the long-term result could be significant growth and gains if those investments are managed well.

Reading the Cash Flow Statement

Overall, the cash flow statement provides an account of the cash used in operations, including working capital, financing, and investing. There are three sections on the cash flow statement. These are labeled as different cash flow activities.

Cash Flow From Operating Activities

Operating activities include any spending or sources of cash that are part a company's day-to-day business operations. Any cash spent or generated 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 suppliers for inventory or goods needed for production
• Income tax payments

Cash Flow From Financing Activities

Cash generated or spent on financing activities shows the net cash flows involved in funding the company's operations. Financing activities include:

• Dividend payments
• Stock repurchases
• Bond offerings that generate cash

Cash Flow From Investing Activities

Cash flows from investing activities provide an account of cash used in the purchase of non-current assets, also known as long-term assets, that will deliver value in the future.

Investing activity is an important aspect of growth and capital. A change to property, plant, and equipment (PPE), a large line item on the balance sheet, is considered an investing activity. When investors and 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) are also found in this section. This item 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, capital expenditures are a reduction in cash flow. Typically, companies with significant capital expenditures are in a state of growth.

If a company has differences in the values of its non-current assets from period to period (on the balance sheet), it might mean there's investing activity on the cash flow statement.

Types of Investing Activities

There are a variety of investing activities that can make an appearance on the cash flow statement. These activities may generate either negative or positive cash flow. Purchases require spending money, which generates negative cash flow. Sales produce income, which generates positive cash flow.

As with any financial statement analysis, it's best to analyze the cash flow statement in tandem with the balance sheet and income statement to get a complete picture of a company's financial health.

What Activities Are Included in Cash Flow From Investing Activities?

The activities included in 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 within this category as they are a long-term investment in the company's operations.

How Do You Calculate Cash Flow From Investing Activities?

Consider a hypothetical company's net annual cash flow from investing activities. For the year, the company spent $30 billion on capital expenditures, of which the majority were fixed assets. Along with this, it purchased $5 billion in investments and spent $1 billion on acquisitions. The company also realized a positive inflow of $3 billion from the sale of investments. To calculate the cash flow from investing activities, the sum of these items would be added together, to arrive at the annual figure of -$33 billion.

Why Is Cash Flow From Investing Activities Important?

Cash flow from investing activities is important because it shows how a company is allocating cash for the long term. For instance, a company may invest in fixed assets such as property, plant, and equipment to grow the business. While this signals a negative cash flow from investing activities in the short term, it may help the company generate cash flow in the longer term. A company may also choose to invest cash in short-term marketable securities to help boost profit.

The Bottom Line

The cash flow statement is one of the three financial reports that a company generates in an accounting period. One of the sections of the cash flow statement is cash flow from investing activities. These can either be positive (cash generated by sales of investment securities or assets) or negative (cash spent on long-term assets, lending, or marketable securities).

Negative cash flow from investing activities does not always indicate poor financial health. It is often a sign that the company is investing in assets, research, or other long-term development activities that are important to the health and continued operations of the company.