Cash Flow from Investing Activities
Cash flow from investing activities is a section of the cash flow statement that shows the cash generated or spent relating to investment activities. It includes purchases of physical assets, investments in securities, or the sale of securities or assets. This section reports the total change in a companys cash position from investment gains/losses and fixed asset investments.
Investing activities include:
- Purchases of long-term assets such as property, plant, and equipment (PP&E)
- Investments in marketable securities such as stocks and bonds
- Acquisitions of other businesses (M&A)
- Divestitures
Negative cash flow from investing activities might not be a bad sign if management is investing in the long-term health of the company. It can include capital expenditures, lending money, and the sale of investment securities. Expenditures in property, plant, and equipment fall within this category as they are a long-term investment.
The formula for calculating the cash from investing section is as follows: $$ \text{Cash from Investing Activities} = \text{Capital Expenditures (Capex)} + \text{Long-Term Investments} + \text{Business Acquisitions} + \text{Divestitures} $$
Understanding cash flow from investing activities is crucial for analyzing how effectively a company manages its cash from long-term investments and acquisitions.
