Cash Flow from Investing Activities

What is Cash Flow from Investing Activities?

Cash flow from investing activities for a small business mainly relates to capital expenditure on the purchase of long term assets and capital receipts from the disposal of long term assets. It can also include the purchase and sale of long term investments.

If we look at the basic cash flow statement below, the highlighted elements represent the main components of cash flow from investing activities of the business.

Cash Flow from Investing Activities
Net income 10,000
Add back depreciation 12,000
Working capital -5,000
Operating activities 17,000
Capital expenditure -35,000
Proceeds from sale of equipment 5,000
Investing activities -30,000
Debt repayments -10,000
New debt 26,000
New capital 12,000
Financing activities 28,000
Net cash flow 15,000
Opening cash balance 1,000
Closing cash balance 16,000

In the above example, the cash flow out due to the purchase of new long term assets (capital expenditure) is 35,000, and the proceeds from the same of equipment is 5,000, resulting in a net cash flow out of the business of 30,000. This net out flow is shown under the heading cash flow from investing activities.

The business will need to fund this outlay on new long term assets, it is unwise to try and do this from operating cash flow or short term facilities such as overdrafts, as these are needed to fund the trading activities of the business. The usual way to fund capital expenditure is by way of bank loans, or a leasing arrangement.

Examples of Cash Flow From Investing Activities

Examples of cash flow from investing activities include the following:

Investing Activities Cash Inflow

  • Cash receipts from sales of property, plant and equipment, intangibles and other long-term assets.
  • Cash receipts from the repayment of loans made to other parties.
  • Cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures (unless classified as cash equivalents or held for trading).

Investing Activities Cash Outflow

  • Cash payments to acquire property, plant and equipment, intangible assets and other long-term assets.
  • Cash loans made to other parties.
  • Cash payments to acquire equity or debt instruments of other entities and interests in joint ventures (unless classified as cash equivalents or held for trading).
Cash Flow from Investing Activities November 6th, 2016Team

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