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 11,000
Depreciation 12,000
Loss on sale of assets 3,000
Gain on sale of investments -4,000
Changes in working capital -5,000
Operating activities 17,000
Purchase of assets -45,000
Proceeds from the sale of investments 10,000
Proceeds from the sale of assets 5,000
Investing activities -30,000
Issue of new capital 12,000
Issue of new debt 26,000
Repayment of debt -8,000
Dividend payments -2,000
Financing activities 28,000
Net cash flow 15,000
Beginning cash balance 1,000
Ending cash balance 16,000

In the above example, the cash flow out due to the purchase of new long term assets is 45,000, this is offset by the proceeds from the sale of investments of 10,000 and the sale of assets of 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.

It should be noted that the gain or loss on the sale of assets and investments is included in the net income of the business and is shown as an adjustment in the cash flow from operating activities section of the cash flow statement.

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 September 27th, 2017Team

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