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.
| 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).
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.