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Chapter 10 — CASH FLOW FROM INVESTING ACTIVITIES
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CASH FLOW FROM INVESTING ACTIVITIES

CASH FLOW FROM INVESTING ACTIVITIES

Cash Flow from Investing activities is money that is spent on investments or made from investments.

 CASH FLOW FROM INVESTING ACTIVITIES

WHAT DOES IT INCLUDE?

When we are talking about Cash Flow from Investing activities, it includes:

  • Changes in cash that come from gains or losses in financial investments 

  • Spending on long term physical assets such as plant, property, and equipment

Financial investments are the company’s holdings in stocks or bonds in OTHER companies. For example, if the company has purchased stocks, its cash from investing activities will go down. If the company sells some investment holdings, the cash from investing activities will go up even if the company didn’t make money on the investment. It simply measures the change of an asset from stock to cash.

Purchases of physical assets will always decrease cash flow from investing activities (cash is going out), but these purchases are made with the expectation of higher future operating cash flows.

Overall, cash flows from investing activities do not give a complete picture by itself, but unusually high levels of capital expenditures can provide clues to the company’s expected future growth.

WHAT DOES IT NOT INCLUDE?

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

  • Interest payments or dividends

  • Debt, equity or other forms of financing

  • Deprivation of capital assets (even though the purchase of these assets is part of investing)

  • All income and expenses

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