Cash flow from investing activities

By Annapoorna


Updated on: Feb 9th, 2022


3 min read

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The net balance of cash moving in and out of a firm at a certain time is referred to as cash flow. The cash flow from investing can either be negative or positive. Positive cash flow shows that a corporation is bringing in more money than spending. Negative cash flow infers the expenses outweigh the income.

What is cash flow from investing activities?

Cash flows from investing activities highlight how much money was spent on non-current assets (also known as long-term assets) that will offer value in the future. Investing is a vital part of capital and growth. Investment activity changes property, plant, and equipment (PPE), a major line item on the balance sheet. Investors and analysts can determine how much a firm spends on PPE by looking at the sources and utilisation of funds in the cash flow statement’s investing section.

Capital expenditures (CapEx), a typical indicator of capital investment used in stock valuation, is also featured in this section. A rise in capital expenditures indicates that the corporation is putting money into future operations. On the other hand, capital expenditures are a drain on cash flow. Typically, businesses that spend substantial money on capital are expanding.

Purchasing fixed assets is an example of cash flow from investing activities with a negative cash flow. Likewise, collecting loans and insurance proceeds is a positive cash flow from investing activities.

Why is cash flow from investing activities important?

Investing activities involve the purchase or sale of long-term assets. The purchase of a business car, selling a building, or acquiring marketable securities are all examples of this. These items are recorded in the investment section of the cash flow statement because they entail the long-term usage of capital.

Capital flow from investment activities is significant because it demonstrates how a firm allocates cash over time. For example, to expand a firm, a company can invest in fixed assets such as property, plant, and equipment. While this indicates a short-term negative cash flow from investment operations, it will help the organisation produce cash flow in the long run. A corporation can invest capital in short-term marketable securities to enhance profits.

Although a company’s investment operations may generate negative cash flow, this does not always imply hurting the firm. The company’s cash flow might be impacted by purchasing property, plant, and equipment, but these assets will help produce revenue growth in the long run.

How to calculate cash flow from investing activities?

If you use accounting software to monitor and record your financial activities, calculating cash flow from investment activities is done automatically. If you do not have an automated system, you can use the following formula. 

Cash flow from investing activities = Total Investment Sum + Gains – Sale value 

These totals will subsequently be recorded on a cash flow statement for your business. Cash flow from investing activities is a segment of the cash flow statement showing the cash inflows and outflows from investing activities in an accounting year. Investing activities include cash flows from the sale of fixed assets, the purchase of fixed assets, and the sale and purchase of business investments in shares or properties, among other things.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more


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