Cash Flow From Investing Activities Explained: Types and Examples (2024)

What Is Cash Flow From Investing Activities?

Cash flow from investing activities (CFI) is one of the sections on the cash flow statement that 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.

Negative cash flow is often indicative of a company's poor performance.However, negative cash flow from investing activities might be due to significant amounts of cash being invested in the long-term health of the company, such as research and development.

Key Takeaways

Cash flow from investing activities is a section of the cash flow statement that shows the cash generated or spent relating to investment activities.
Investing activities include purchases of physical assets, investments in securities, or the sale of securities or assets.
Negative cash flow from investing activities might not be a bad sign if management is investing in the long-term health of the company.

Understanding Cash Flow From Investing Activities

Before analyzing the different types of positive and negative cash flows from investing activities, it's important to review where a company's investment activity falls within its financial statements. 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 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.

Types of Cash Flow

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

Cash Flow From Operating

Operating activities include any spending or sources of cash that are involved in a company's day-to-day business activities. 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

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

Cash Flow From Investing

Cash flows from investing activities provide an account of cash used in the purchase of non-current assets–or 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), 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, capital expenditures are a reduction in cash flow.Typically, companies with a significant amount of capital expenditures are in a state of growth.

Below are a few examples of cash flows from investing activities along with whether the items generate negative or positive cash flow.

Purchase of fixed assets–cash flow negative
Purchase of investments such as stocks or securities–cash flow negative
Lending money–cash flow negative
Sale of fixed assets–cash flow positive
Sale of investment securities–cash flow positive
Collection of loans and insurance proceeds–cash flow positive

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.

Example of Cash Flow From Investing Activities

Below is the cash flow statement from Apple Inc. (AAPL) according to the company's 10-Q report issued on June 29, 2019.

The three sections of Apple's statement of cash flows are listed with operating activities at the top and financing activities at the bottom of the statement (highlighted in orange). In the center, are the investing activities (highlighted in blue).

Investing activities that were cash flow negative are highlighted in red and include:

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.

How Do You Calculate Cash Flow From Investing Activities?

Consider a hypothetical example of Google'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.

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."

Cash Flow From Investing Activities (CFI): This is a crucial section on the cash flow statement that outlines the cash generated or spent on various investment-related activities during a specific period. This includes purchases of physical assets, investments in securities, and the sale of securities or assets.

Negative Cash Flow and Company Performance: Negative cash flow from investing activities is commonly seen as an indicator of poor company performance. However, it's essential to recognize that in some cases, negative cash flow might result from substantial investments in the company's long-term health, such as research and development initiatives.

Financial Statements Overview:

Balance Sheet: This document provides a snapshot of a company's assets, liabilities, and owner's equity as of a specific date.
Income Statement: It offers an overview of company revenues and expenses during a given period.
Cash Flow Statement: This statement bridges the gap between the income statement and the balance sheet, revealing how much cash is generated or spent on operating, investing, and financing activities over a specific period.

Types of Cash Flow:

Cash Flow From Operating Activities: Encompasses cash spent or generated in a company's day-to-day business activities, including sales, interest payments, salary and wages, payments to suppliers, and income tax payments.
Cash Flow From Financing Activities: Illustrates net cash flows involved in funding the company's operations, covering dividend payments, stock repurchases, and bond offerings.
Cash Flow From Investing Activities: Focuses on cash used in the purchase of non-current assets, such as property, plant, and equipment (PPE), and includes capital expenditures (CapEx), which is a measure of capital investment.

Examples of Cash Flows from Investing Activities:

Negative Cash Flow: Purchase of fixed assets, purchase of investments (stocks or securities), lending money.
Positive Cash Flow: Sale of fixed assets, sale of investment securities, collection of loans, and insurance proceeds.

Apple Inc.'s Cash Flow Statement Example: In Apple's 10-Q report, investing activities that were cash flow negative included purchases of marketable securities and payments for property, plant, and equipment. Positive cash flows resulted from proceeds from maturities and the sale of marketable securities. The net cash flows generated from investing activities were $46.6 billion.

Calculation of Cash Flow From Investing Activities: To calculate this figure, you sum up various items, such as capital expenditures, lending money, and the sale of investment securities. For instance, if a company spent $30 billion on capital expenditures, purchased $5 billion in investments, spent $1 billion on acquisitions, and realized $3 billion from the sale of investments, the annual cash flow from investing activities would be -$33 billion.

Importance of Cash Flow From Investing Activities: This metric is crucial as it reveals how a company allocates cash for the long term. Investing in fixed assets or marketable securities may result in short-term negative cash flow but can contribute to long-term profitability. Analyzing this metric alongside the balance sheet and income statement provides a comprehensive view of a company's financial health.