What are Investing Activities? Definition Meaning Example

investing activity examples

For example, if it adds a new machine, the company can produce more output. Likewise, when acquiring another company (share purchase), its operations’ scale also increases. Cash flow from investing (CFI) activities comprises all the cash purchases and disposals of non-current assets that produce benefits for the company in the long run.

It shows just how much money was spent or generated from investing, operating, and financing activities over a specific time frame. In particular, the investing activities section of the cash flow statement has four major accounting transactions. Anytime a company acquires investments in cash or cash equivalents, this is reported as a negative amount in the cash flow statement.

How does one calculate the cash flow from an investing activity?

Cash flow from investment activities provides an account of the amount spent on non-current or long-term assets, which will bring value in the future. It refers to the cash inflow and outflow from purchasing assets, sale proceeds of assets or disposal of shares, or redemption of investments. So, the company decided to sell it and obtain additional funds to spend on newer machines. But a negative cash flow from investing section is not a sign of concern, as that implies management is investing in the long-term growth of the company. When David runs his cash flow statement at the end of the year, the following items will be displayed in the investing activities section of the statement.

  • Investment Activity Cash Flow is a component of the statement of cash flows that reports the amount received or spent on various investment-related activities over time.
  • Before analyzing the different types of positive and negative cash flows from investment activities, it is essential to review when a company’s investment activity includes its financial statements.
  • It includes the gains and losses of the business’s investment and the resulting changes during the company’s fixed assets’ purchase or sale of equipment during the reporting period.
  • In addition, the company may also invest in short-term securities sold to help maximize profits.
  • The cash flow from investing activities is the type of cash that is not generated in the short term, but rather in the long term.

Cash flow from investing activities involves the amount invested in fixed assets and in long-term securities (cash outflow), and the amount realized from the sale of these items (cash inflow). Cash flow from investing activities is a major component of the cash flow statement. The cash flow statement is one of the four annual financial statements prepared by companies at the end of the year. While a negative cash flow in operating activities may be cause for alarm, in most cases negative cash flow in investing activities may temporarily reduce cash flow. However, it is almost always seen as a worthy investment in your business in the short term while helping to grow your business over the long term. Investing activities are an essential indicator of a company’s growth strategy.

Significance of Investing Activities

Fixed assets are various tangible assets to support operational activities. Examples of fixed assets are buildings and property, machinery, equipment, vehicles, and computers. By spending money on capital assets, the company should generate large cash bookkeeping for startups inflows in the future. Operating activities are about how the company makes money from day-to-day operations. This section presents a large number of accounts in the income statement and working capital (current assets minus current liabilities).

investing activity examples

Typically, disposal of an investment like production equipment results in cash flowing into the company’s account. Therefore, this transaction will read as a positive amount in the cash flow from investing activities. Therefore, the accountant shall report the transaction as positive amounts in the investing activities section of the cash flow statement.