Cash Flow from Investing Activities
Candlefocus EditorCash flow from investing activities shows the inflows and outflows of a company's cash that results from investment activities during the reporting period. Investing activities consist of the purchase or sale of long-term assets, or the purchase or sale of investments in securities.
For example, if a company buys new equipment at the beginning of the year and sells bonds to fund the purchase, it is considered an investment activity. Meanwhile, when a business sells equipment or investments, it would be considered an investment activity as well.
Negative cash flow from investing activities could be a cause of concern, since it may signal that a company is not generating adequate cash to fund its operations. However, it is possible for a company to have a negative cash flow from investing activities and still have a profitable business.
In some cases, a company may have a negative cash flow from investing activities due to the fact that management is investing in the long-term health of the company. Examples of investments in the long-term health of a company include research and development of new products, marketing and advertising, and employee training.
It is important to carefully evaluate a company's cash flow from investing activities, as it can provide insight into the financial health of the company. By reviewing the cash flow statement, investors or creditors can better determine whether a company is doing a good job at managing its investments and can help them decide whether to invest or lend funds to the business.
Overall, cash flow from investing activities is a key component of the business financial statement that gives an indication of the company's ability to manage its investments, acquire assets, and generate cash. A negative cash flow from investing activities should be closely evaluated, as it may indicate either a short-term setback or an ominous sign of mismanagement. Furthermore, positive cash flows can signal that the company is making good investments and could possibly be a good investment opportunity.