Understanding Cash Flow from Investing Activities: A Comprehensive Guide

Cash Flow from Investing Activities is the section of a company’s cash flow statementCash Flow Statement​A cash flow Statement contains information on how much cash a company generated and used during a given period. that displays how much money has been used in (or generated from) making investments during a specific time period. Investing activities include purchases of long-term assets (such as property, plant, and equipment)PP&E (Property, Plant and Equipment)PP&E (Property, Plant, and Equipment) is one of the core non-current assets found on the balance sheet. PP&E is impacted by Capex,, acquisitions of other businesses, and investments in marketable securities (stocks and bonds).

What are Investing Activities in Accounting?

Let’s look at an example of what investing activities include. In this section of the cash flow statement, there can be a wide range of items listed and included, so it’s important to know how investing activities are handled in accounting.

Investing activities can include:

• Purchase of property plant, and equipment (PP&E), also known as capital expendituresCapital ExpenditureA capital expenditure (“CapEx” for short) is the payment with either cash or credit to purchase long term physical or fixed assets used in a
• Proceeds from the sale of PP&E
• Acquisitions of other businesses or companies
• Proceeds from the sale of other businesses (divestitures)
• Purchases of marketable securities (i.e., stocks, bonds, etc.)
• Proceeds from the sale of marketable securities

There are more items than just those listed above that can be included, and every company is different. The only sure way to know what’s included is to look at the balance sheet and analyze any differences between non-current assets over the two periods. Any changes in the values of these long-term assets (other than the impact of depreciation) mean there will be investing items to display on the cash flow statement.

Cash Flow from Investing Activities Example

Let’s look at an example using Amazon’s 2017 financial statements. As you can see below, investing activities include five different items, which total to arrive at the net cash provided by (used in) investing. Let’s take a closer look at each of these items for Amazon.

Amazon’s investing activities include:

• Outflow: purchase of PP&E including software and website development
• Outflow: purchase of marketable securities
• Outflow: acquisitions, net of cash acquired
• Inflow: proceeds from the sale of property and equipment
• Inflow: proceeds from the sale of marketable securities

As you can see in Amazon’s numbers, the main uses of cash for investing have been in purchasing property/equipment/software/websites, acquiring other businesses, and buying marketable securities (stocks and bonds).

It’s also important to point out that the purchase of PP&E (CapExHow to Calculate CapEx - FormulaThis guide shows how to calculate CapEx by deriving the CapEx formula from the income statement and balance sheet for financial modeling and analysis.) has been fairly proportional to depreciation, which indicates the company is consistently reinvesting to keep its assets in good shape.

What Do Investing Activities Not Include?

Now that you have a solid understanding of what’s included, let’s look at what’s not included.

Not included items are:

• Interest payments or dividends
• Debt, equity, or other forms of financing
• Depreciation of capital assets (even though the purchase of these assets is part of investing)
• All income and expenses related to normal business operations

Applications in Financial Modeling

In financial modelingWhat is Financial ModelingFinancial modeling is performed in Excel to forecast a company's financial performance. Overview of what is financial modeling, how & why to build a model., it’s critical to have a solid understanding of how to build the investing section of the cash flow statement. The main component is usually CapEx, but there can also be acquisitions of other businesses. This section is usually pretty straightforward.

Below are an example and screenshot of what this section looks like in a financial model. Notice how every year the company has “Investments in Property & Equipment,” which are its capital expenditures. There are no acquisitions (“Investments in Businesses”) in any of the years; however, it is there as a placeholder.

Image: CFI’s financial modeling classes.

Additional Resources

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To continue learning and progressing your career, these additional CFI resources will be helpful:

• Balance Sheet ItemsBalance SheetThe balance sheet is one of the three fundamental financial statements. The financial statements are key to both financial modeling and accounting.
• Income Statement ItemsIncome StatementThe Income Statement is one of a company's core financial statements that shows their profit and loss over a period of time. The profit or
• Operating Cash FlowOperating Cash FlowOperating Cash Flow (OCF) is the amount of cash generated by the regular operating activities of a business in a specific time period.
• Types of Financial ModelsTypes of Financial ModelsThe most common types of financial models include: 3 statement model, DCF model, M&A model, LBO model, budget model. Discover the top 10 types