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Cash Flow from Investing Activities

Cash used to invest in and grow the business

What is Cash Flow from Investing Activities?

Cash Flow from Investing Activities is the section of a company’s cash flow statement that displays how much money has been used in (or generated from) making investments in a specific time period. Investing activities include purchases of long-term assets (such as property, plant and equipment), acquisitions of other businesses, and investments in marketable securities (stocks and bonds).

 

Cash Flow from Investing Activities Diagram

 

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 what investing activities are in accounting.

Investing Activities Include:

  • Purchase of property plant and equipment (PP&E) – a.k.a. capital expenditures
  • 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 that just those listed above that can be included, and every company is different. The sure what 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

 

Cash Flow from Investing Activities Example
Source: amazon.com

 

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 (Capex) 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, lets all look at what’s not included.

Not included items are:

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

 

Applications in Financial Modeling

In financial modeling, 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 just 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 is its capital expenditures. There are no acquisitions (“Investments in Businesses”) in any of the years; however, it is there as a placeholder.

 

investing activities financial modeling excel

 

Image: CFI’s financial modeling classes.

 

Additional Resources

Thank you for reading this guide. CFI is the official global provider of the Financial Modeling and Valuation Analyst (FMVA) certification, which can transform anyone into a world-class financial analyst.

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

  • Balance Sheet Items
  • Income Statement Items
  • Operating Cash Flow
  • Types of Financial Models

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