Cash Flow From Investing Activities Explained: Types and Examples 2025

However, an excessive amount of negative cash flow might suggest overly aggressive growth strategies, which could lead to issues in financial stability. Conversely, a consistent positive cash flow from investing might mean the business is not investing sufficiently to maintain or accelerate its growth. For portfolio managers and retail investors, these cash flows provide implications on the risk and return trade-off of investing in the company. Understanding this could help them in making an informed decision and developing successful investment strategies.

Cash Flows from Financing Activities

So, as you can see, in the case of Vincent’s investing activities example there is a negative net cash flow from investing activities of -£225k. As shown in Vincent’s example, companies with negative cash flow from investing generally mean they’re in a growth state. CFI includes a whole range of investing activities that involve the cash purchases and disposals (selling) of non-current assets. 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.

• In a nutshell, we can say that cash flow from investing activities reports the purchase and sale of long-term investments, property, plants, and equipment.
• Such items include material classes of liability (or asset) arising from financing activities and material reconciling items (ie cash or non-cash changes).
• A company’s financial stability can be assessed through the lens of its investment activities.
• Cash management includes managing cash and cash equivalents for the purpose of meeting short-term cash commitments rather than for investment or other purposes (paragraphs 7 and 9 of IAS 7).
• Big Brand Company purchased 2,000 shares of Company A at $50 per share during the year 2023 for investment purpose.
• When you expand your company, you’ll look to invest in property, plant, and equipment (PP&E).

Final Formatting Note for the Investing and Financing Sections

The Interpretations Committee received a request about the basis of classification of financial assets as cash investing activities equivalents in accordance with IAS 7. The direct method of calculating cash flow from operating activities is a straightforward process that involves taking all the cash collections from operations and subtracting all the cash disbursements from operations. This approach lists all the transactions that resulted in cash paid or received during the reporting period. This section includes outflows from the purchase of property and equipment, making loans, and the purchase of securities.

Examples

• Every business always tries to maintain a cash flow level that is positive, which means inflow is more than outflow.
• IAS 7.44A-E stipulate a requirement for reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities.
• It’s important to investors and creditors because it depicts how much of a company’s cash flow is attributable to debt financing or equity financing as well as its track record of paying interest, dividends, and other obligations.
• When a company makes long-term investments in securities, acquires property, equipment, vehicles, or it expands its facilities, etc., it is assumed to be using or reducing the company’s cash and cash equivalents.
• To calculate cash flow from investing activities, add the purchases or sales of property and equipment, other businesses, and marketable securities.
• The investing activities section shows how a company grows and expands, affecting its financial performance.
• This knowledge is vital for seeing a company’s financial health and growth potential.

These activities reflect how management is allocating resources to grow its business and improve its cash position. The investing part of the cash flow statement shows how a company uses capital for long-term assets and investments. As we will see further in the article elaborated below, when we calculate cash flow from investing activities, this cash flow is a great indicator of the core investing activity of the company.

Cash Flow Definitions

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 are one of assets = liabilities + equity the main categories of net cash activities that businesses report on the cash flow statement. Investing activities in accounting refers to the purchase and sale of long-term assets and other business investments, within a specific reporting period.

What should investors be cautious about regarding cash flows from investing activities?

Investing activities are the acquisition and disposal of long‑term assets and other investments not included in cash equivalents. The investments cost $80,000 (given on the balance sheet) and there was a gain of $10,000 when they were sold (given on the income statement). Understanding cash flow statements can help you manage your business’s finances by revealing not just the amounts but also the sources and uses of cash. To help visualize each section of the cash flow statement, here’s a cash flow statement example of a fictional company generated using the indirect method. Investing activities refer to the buying and selling of long-term assets or investments that are not considered part of the company’s normal operations.

Clearly, the exact starting point for the reconciliation will determine the exact adjustments made to get down to an operating cash flow number. This section represents the amount of cash used or generated from investment-related activities in a specific period. T-Shirt Pros’ statement of cash flows, as it was prepared by thecompany accountants, reported the following for the period, and hadno other capital expenditures. Before making any investment, it’s important to undergo extensive financial planning by running your business investments through a cash flow forecast. This will show you the impact your investment-related activities will have on your cash flow statements and tell you how much cash you might need to get funded.

Cash flows arising from taxes on income shall be separately disclosed and shall be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities. The statement of cash flows shall report cash flows during the period classified by operating, investing and financing activities. The following section will show you how to prepare the statement of cash flows (direct method for operating activities section) on page 270 from the financial statements on page 255. The following is a sample statement of cash flows that has been prepared based on the financial statements presented Medical Billing Process on page 255. The operating activities section uses the direct method in the operating activities section.