Cash Flow from Investing Activities

Cash flow from operations tells what cash was generated in the normal course of business and by changes in current asset and liability (working capital) accounts on the balance sheet.

• But what about cash used to invest in the business?
• Invest in other businesses?
• What about cash acquired by selling investments in other businesses?

The statement of cash flow from investing activities provides this information.

This section shows, among other things: cash used for investments in the business, including

• capital expenditures for plant, equipment, and
• other longer-term product assets.

For most growing companies, while cash flow from operations should be positive, cash flow from investing activities is often negative.

Why? Because growing companies need more physical investments - property, plant, and equipment (PP&E) - to sustain growth.

It is possible to generate positive cash flows in this part of the statement either

• by selling PP&E or
• by selling investments owned by the company.

More often than not, the total "Cash Flows from Investing Activities" is negative, and that is perfectly normal.

TIP: By comparing net cash flows from operations and net cash flows from investing activities, you can get a first glance at whether a business is productive and healthy.

If positive CFO > negative CFI, then the business produces more cash than it consumes.

But don't jump to a favourable conclusion too quickly - you may be looking at an airline (e.g. Air Asia ?) that's about to pay for five new jets in the next quarter. A surplus cash situation must be sustained to be meaningful.