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.
What are Investing Activities in Accounting?
Let’s look at an example of what investing activities include. 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.
Investing activities can include:
- Purchase of property plant, and equipment (PP&E), also known as capital expenditures
- Proceeds from the sale of PP&E
- Acquisitions of other businesses or companies
- Proceeds from the sale of other businesses (divestitures)
- Purchases of marketable securities (i.e., stocks, bonds, etc.)
- Proceeds from the sale of marketable securities
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.
How to Interpret Cash Flows from Investing Activities
The cash flows from investing activities line item is one of the more important items on the statement of cash flows, for it can be a substantial source or use of cash that significantly offsets any positive or negative amounts of cash flow generated from operations. It is particularly important in capital-heavy industries, such as manufacturing, that require large investments in fixed assets.
When a business is reporting persistently negative net cash flows for the purchase of fixed assets, this is a strong indicator that the firm is in growth mode, and believes that it can generate a positive return on additional investments.
It can also be useful to examine these cash flows on a trend line. When there is a steady decline in investments in fixed assets, it can imply that management does not believe there are good investment opportunities within the business. If so, there should be an increase in dividend payouts, because management has chosen to instead send excess cash back to investors.
Alternatively, a decline in investments in fixed assets could imply that the firm is not profitable, and no longer has the cash to make further investments. If so, the profit figure on the firm’s income statement should be low or negative.
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:
- Purchases of marketable securities for $21.9 billion
- Payments acquiring property, plant, and equipment for $7.7 billion
- Payments for business acquisitions and non-marketable securities
Investing activities that were cash flow positive are highlighted in green and include:
- Proceeds from maturities of marketable securities for $26.7 billion
- Proceeds from the sale of marketable securities for $49.5 billion
The net cash flows generated from investing activities were $46.6 billion for the period ending June 29, 2019. Overall Apple had a positive cash flow from investing activity despite spending nearly $8 billion on new property, plant, and equipment.